Skip to Content
Stock Analyst Update

Carnival Is Cruising Along Long-Term

Despite company commentary suggesting that yield growth is slowing, nothing warranted imminent concern about Carnival's ability to drive demand creation or manage its cost structure.


Narrow-moat  Carnival's (CCL) shares tumbled after company commentary suggesting that first-half 2019 yield growth could be slower than fourth-quarter 2018 guidance (1%-2%). However, further detail on interim pricing weakness implied that this was largely regarding Caribbean demand, lapping a serious weather season last year that affected 2018 regional demand. In our opinion, this issue should be transitory and is unlikely to repeat in 2019, especially since the Caribbean has experienced a relatively quiet hurricane season in 2018. Given that we already had yield growth slowing to 2% in 2019 from 5% in 2018, we don’t plan to make any material change to our $70 fair value estimate. We view the shares as 10% undervalued, trading at 13 times our 2019 estimate, near the low-double-digit earnings per share growth rate we expect over the next five years.

In our opinion, there were no metrics that warranted imminent concern about Carnival’s ability to drive demand creation or manage its cost structure. Our long-term yield outlook incorporates 2% average yield increases, above the flattish pace the company has been able to capture over the past decade, as we expect that improved revenue-management strategies and systems should lead to structurally higher yield grab than in the past. We have costs rising more than 1% on average, versus the flattish pace they have maintained on an as-reported basis over the past decade, as fuel and foreign exchange can weigh on the overall metric and have real impacts on cash flows. We expect these metrics add a normalized perspective to Carnival’s earnings power, adjusting for the cyclical silo that it operates within.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

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

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.