Barron's
INVESTORS THINKING OF TAKING the plunge and buying cruise-line operator Carnival Corp. (ticker: CCL) should get on board.
This morning, JPMorgan analyst Kevin Milota upgraded shares of Carnival and its smaller peer Royal Caribbean Cruises (RCL) from Neutral to Overweight.
Milota wrote that the move was prompted by a recovery in fundamentals for the cruise industry as well as in consumer confidence and the macroeconomic environment.
Milota also noted that shares are trading at discounts to historical valuations despite recent gains. His new target prices for Carnival and Royal Caribbean are $43 and $34, respectively (See Stocks to Watch Today).
Carnival was recently up 1% to a recent $34.12, and Royal Caribbean was 5% higher to $27.25. As Milota noted, the shares have gained 73% and 332%, respectively, since the beginning of March, when many stocks hit new lows.
Royal Caribbean Cruises still trades at 19 times forward earnings, so while not glaringly overbought, it is not as cheap as Carnival, priced at just over 15 times.
Likewise, Carnival has substantially higher operating and profit margins, as well as average returns on assets and equity. Carnival has more debt -- $10.1 billion versus Royal Caribbean's $7.3 billion -- but a much stronger cash position too, with nearly one billion on its balance sheet.
Carnival has also been able to turn in a steadier performance throughout the downturn than Royal Caribbean. The former has beat analysts' expectations every quarter since the recession began in late 2007, and done so by a double-digit margin each quarter since mid-2008. Conversely, Royal Caribbean has had a choppier history, as it turned in high double-digit misses when it reported in January and July.
Many small-caps have outrun larger rivals this year, and Milota wrote that Royal Caribbean will "react at an accelerated pace" to Carnival, in racking up either gains or losses. Yet longer term, Carnival is still projected to outpace Royal Caribbean, 15% to 12.5%, according to analysts' estimates for the next three to five years.
Both companies should of course benefit as the economy begins it slow slog upward. Milota noted that longer booking windows and a pickup in demand should finally allow the industry to clock some positive net yields going forward.
Additionally, Carnival Cruises can use its market-leadership position -- as it has done previously -- to negotiate with greater leverage with vendors to keep costs down.
In sum, all indications suggest that things should be moving full steam ahead for Carnival in the coming months.
This morning, JPMorgan analyst Kevin Milota upgraded shares of Carnival and its smaller peer Royal Caribbean Cruises (RCL) from Neutral to Overweight.
Milota wrote that the move was prompted by a recovery in fundamentals for the cruise industry as well as in consumer confidence and the macroeconomic environment.
Milota also noted that shares are trading at discounts to historical valuations despite recent gains. His new target prices for Carnival and Royal Caribbean are $43 and $34, respectively (See Stocks to Watch Today).
Carnival was recently up 1% to a recent $34.12, and Royal Caribbean was 5% higher to $27.25. As Milota noted, the shares have gained 73% and 332%, respectively, since the beginning of March, when many stocks hit new lows.
Royal Caribbean Cruises still trades at 19 times forward earnings, so while not glaringly overbought, it is not as cheap as Carnival, priced at just over 15 times.
Likewise, Carnival has substantially higher operating and profit margins, as well as average returns on assets and equity. Carnival has more debt -- $10.1 billion versus Royal Caribbean's $7.3 billion -- but a much stronger cash position too, with nearly one billion on its balance sheet.
Carnival has also been able to turn in a steadier performance throughout the downturn than Royal Caribbean. The former has beat analysts' expectations every quarter since the recession began in late 2007, and done so by a double-digit margin each quarter since mid-2008. Conversely, Royal Caribbean has had a choppier history, as it turned in high double-digit misses when it reported in January and July.
Many small-caps have outrun larger rivals this year, and Milota wrote that Royal Caribbean will "react at an accelerated pace" to Carnival, in racking up either gains or losses. Yet longer term, Carnival is still projected to outpace Royal Caribbean, 15% to 12.5%, according to analysts' estimates for the next three to five years.
Both companies should of course benefit as the economy begins it slow slog upward. Milota noted that longer booking windows and a pickup in demand should finally allow the industry to clock some positive net yields going forward.
Additionally, Carnival Cruises can use its market-leadership position -- as it has done previously -- to negotiate with greater leverage with vendors to keep costs down.
In sum, all indications suggest that things should be moving full steam ahead for Carnival in the coming months.
