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Cruise Lines Ready to Set Sail

Carnival, Royal Caribbean, and Norwegian may be overvalued at present, but lower fuel prices and better penetration into untapped markets could generate increased earnings down the road.

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Jaime Katz: After facing a difficult period that included the global economic recession and numerous ship incidents, which led to negative publicity, we believe the cruise industry is set to generate increased earnings, cash flow, and ROICs, thanks to their narrow economic moats and competitive positions.

Carnival (CCL), Royal Caribbean (RCL), and Norwegian (NCLH) have narrow economic moat ratings that are predicated on efficient scale, brand intangible asset, and a low cost structure, which allow the businesses to help the company raise prices, control costs, and keep competitors out of the market.

Jaime M. Katz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.