Morningstar Analysts Raise Carnival Valuation

The cruise operator has built itself a moat to fight off competition, while exchange rate fluctuations have looked favourably on its LSE-listed share prospects

Holly Cook 26 September, 2014 | 9:53AM
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Morningstar analysts have raised their valuation for the world’s largest cruise company. Carnival (CCL) has 100 ships in service and passenger capacity of around 200,000, allowing it to reach a diverse group of consumers in a segment of the travel and leisure industry that’s only lightly penetrated.

Morningstar's Jaime Katz has increased her fair value estimate for Carnival to 2,658p per share from 2,514, largely due to exchange rate fluctuations. She notes that: "Early indications of first-half 2015 booking and pricing trends appear solid despite some weakness in pricing persisting throughout the Caribbean." Katz expects to see an up-tick in the firm's 2015 expenses as projects in the pipeline will see more ships in the dry dock, but longer term she believes the company will resume strong free cash flow growth as yield growth stabilises and costs revert to more normal levels.

Carnival has protected itself well from competition, enjoying a sustainable competitive advantage that has earned it a 'narrow economic moat' from Morningstar. This moat rating is awared on the back of the cruise operator's efficient scale, cost advantages and intangible brand assets. Carnival has captureed about half of the total current capacity in the cruise market, and together with the other largest industry player controls nearly 75% of the global market. "The significant share of capacity that is represented by these two companies is enough to prevent most would-be rivals from entering the marketplace and directly competing with the incumbents," Katz says. 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Carnival PLC1,460.40 GBX-2.05Rating

About Author

Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites