Stock in Focus: Carnival

As baby boomers retire, they are likely to pursue more leisure travel, and cruise ship operator Carnival is positioned to benefit

Jaime M. Katz, CFA 24 June, 2015 | 10:10AM
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Carnival (CCL) is the largest company in the cruise industry, operating 10 global brands with 100 ships in service and passenger capacity of around 200,000, allowing the firm to reach a diverse group of consumers in a lightly penetrated vacation segment. Efficient scale, the lowest unit costs in the industry, and intangible brand assets provide the company with a narrow economic moat.

We believe Carnival's market remains underpenetrated, as only half of the addressable market has ever cruised, although the firm believes 75% of the addressable market will plan to cruise in the next five years. With low domestic penetration rates and even lower international recognition, upside potential remains significant. Additionally, Carnival has the best ability to capitalise on underserved markets like Asia Pacific and Latin America, where we believe it could succeed in the years ahead, thanks to its global reach and tailored fleet.

Domestically, the aging population remains a linchpin in our opinion regarding the supply/demand imbalance in the cruise industry. This segment will drive demand and create a disconnect between the demand in the market and the supply of berths over the next five years as the 65-and-older demographic grows faster than overall cruise industry capacity growth.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Carnival PLC1,714.20 GBX1.84Rating

About Author

Jaime M. Katz, CFA  is an equity analyst for Morningstar, covering leisure and travel and retail.

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