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Carnival's Attractive Even With Lower Outlook

Despite slower yield growth, we expect operating cash flow to still rise.

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 Carnival’s (CCL)/(CUK) outlook for slower-than-expected yield growth in 2019 weighed on the shares after the cruise operator’s fiscal fourth-quarter report. However, we believe the stock is attractive even as we reduce our fair value estimate.

The company now expects 2019 constant-currency yield growth of just 1%, a significant slowdown from the 4% it was able to capture in 2018, but also a tick down from the implied first-half 2019 guidance offered last quarter. We think most investors expected that the first half would post near the bottom of the range but the second half would be stronger, inferring a full-year lift from 2018, which has failed to surface. More disconcerting is whether the failure to capture meaningful yield growth is predictive of consumers being less willing to spend on cruises, something we don’t believe we will have a clear picture of until mid-2019. For now, all measures point to spending remaining healthy for U.S. consumers, which represent around half of Carnival’s sourced customers.

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