Carnival Shareholders Are Having Fun Now, Too -- Ahead of the Tape

By Steven Russolillo 

The smooth sailing should continue for Carnival Corp.

Shares are at records, having fully recovered from last year's Zika-related concerns. The world's largest cruise-ship company has benefited from higher prices, strong bookings and low fuel costs. Improving consumer confidence and continued success overseas will likely keep buoying results, including on Tuesday when Carnival unveils its fiscal first-quarter report.

Analysts polled by FactSet estimate earnings of 35 cents a share for the period ending in February, down 4 cents from a year earlier. Revenue is expected to have increased 3.6% to $3.8 billion.

Carnival, which operates Carnival Cruise Line as well as the Princess, Cunard and Holland America lines, warned in December that higher oil prices would likely raise its fuel expenses by $200 million in 2017. Even so, analysts expect rising bookings at elevated prices will offset some of those higher costs.

Then there is Carnival's exciting opportunity in Asia, particularly with Chinese tourism booming. Almost a million Chinese people went on cruises in 2015, up 40% from the prior year, according to the Cruise Lines International Association, making that country the sector's fastest-growing market. The country's Ministry of Tourism estimates that 4.5 million Chinese will take cruises annually by 2020, with that figure expected to rise to 10 million annually in 2030.

CEO Arnold Donald, now almost four years at the helm and the first Carnival boss who isn't part of the founding Arison family, said last year that China was a profitable and growing, albeit still small, segment of Carnival's overall business. "We are very, very bullish on China long term," he said in December.

Carnival also deserves credit for investing prudently in recent years. Its return on invested capital has risen for four consecutive years and jumped to 8.9% in fiscal 2016. That marked its highest ROIC since 2007 and some 43% more than its average over the past decade.

One worry is the fact that Carnival's stock has surged by more than one-third since last July, potentially setting it up for a pullback. But most valuation metrics suggest the shares remain reasonably priced. Fetching 15 times projected earnings over the next 12 months, the stock trades at a 6% discount to its five-year average.

With investors' eyes firmly on the horizon, Carnival's shares rarely have sharp swings immediately after earnings. Over the past five years, shares have averaged a 3% move on earnings day without any double-digit-percentage swings.

Seasickness appears unlikely.

(END) Dow Jones Newswires

March 27, 2017 15:19 ET (19:19 GMT)

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