In light of the summer travel season, Carnival Corp. (CCL, Financial)(LSE:CUK, Financial), Royal Caribbean Cruises Ltd. (RCL, Financial) and Norwegian Cruise Line Holdings Ltd. (NCLH, Financial) offer good growth potential for consumers and investors.
Brief overview of the cruising industry
According to GuruFocus’ industry overview pages, Carnival is among the top five travel and leisure companies in terms of market cap with 6.8% industry weight. The Miami-based company’s portfolio of cruise lines include Carnival Cruise Line, Princess Cruises, Holland America Line and Cunard Line. Royal Caribbean, the holding company for Royal Caribbean International and Celebrity Cruises, is eighth with 3.6% industry weight as Figure 1 illustrates.
Figure 1
Carnival
GuruFocus ranks Carnival’s profitability 7 out of 10 as the company’s profit margins and returns outperform over 70% of global competitors. Carnival’s revenue and operating margins have increased 3.80% and 13.30% per year over the past five years, which are good investing signs according to Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio).
Ahead of its fiscal second-quarter earnings release on Monday, Carnival announced several key milestones on its investor relations website, including Carnival Cruise Line’s major program launch in Oceania and Costa’s new ship specially designed for Chinese cruisers. CEO Arnold Donald said on March 22 that earnings for the second quarter are expected to range between 56 cents and 60 cents, up 4 to 8 cents from the first quarter.
Several gurus invested in Carnival over the past five months, including PRIMECAP Management (Trades, Portfolio) and Ken Heebner (Trades, Portfolio)’s Capital Growth Management.
Royal Caribbean
Like Carnival, Royal Caribbean also has a GuruFocus profitability rank of 7, suggesting good growth potential for investors. The company’s operating margin is near a 10-year high of 19.87% while its return on equity is near a 10-year high of 16.40%. Both financial metrics outperform approximately 80% of global competitors.
Royal Caribbean announced on June 14 that it agreed to acquire a 66.7% equity stake in privately-owned Silversea Cruises, a “crown jewel” and a major company specializing in “luxury and expedition cruising,” according to CEO Richard Fain. Silversea Executive Chairman Manfredi Lefebvre mentioned the partnership will “bolster the growth” of Silversea in the upcoming years.
Ron Baron (Trades, Portfolio) and Ray Dalio (Trades, Portfolio)’s Bridgewater Associates invested in Royal Caribbean in the past five months as the company offers good growth potential.
Norwegian
According to Table 1, Norwegian has the highest Piotroski F-score, operating margin and Joel Greenblatt (Trades, Portfolio) return on capital among the three cruise companies.
| Financial Metric | Carnival | Norwegian | Royal Caribbean | Travel and Leisure Industry Median |
| Price-earnings ratio | 16.85 | 14.89 | 13.8 | 22.08 |
| Price-sales ratio | 2.48 | 2.15 | 2.54 | 1.84 |
| Operating margin | 16.43% | 19.79% | 19.76% | 9.69% |
| Return on equity | 11.17% | 15.09% | 16.05% | 8.82% |
| Greenblatt return on capital | 8.53% | 10.12% | 9.56% | 11.83% |
| Yacktman forward rate of return | 17.23% | 19.92% | 22.04% | 16.05% |
| Piotroski F-score | 6 | 8 | 7 | Ă‚ |
Table 1
GuruFocus ranks Norwegian’s profitability 9 out of 10, two ranks higher than those for Carnival and Royal Caribbean. Norwegian’s three-year revenue growth rate of 16.80% outperforms 86% of global competitors.
See also
GuruFocus launched detailed industry overview pages in April, allowing users to look at various metrics like median price-sales and median return on equity for a specific industry. You can also view the top companies for an industry: for example, the top travel and leisure companies include Booking Holdings Inc. (BKNG, Financial), Las Vegas Sands Corp. (LVS, Financial), Huazhu Group Ltd. (HTHT, Financial) and Marriott International Inc. (MAR, Financial).
Disclosure: No positions.
