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Cruising For A Deal

Posted: Jun 27, 2008 14:53 PM by Glenn Curtis

Tickers in this Article: RCL, CCL

As people set sail in the summer months aboard large cruise ships, investors have a chance to take a ride on cruise operators too.

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There are some attractive features about cruising that consumers are aware of, and investors should make note of too. In the past, the number and/or scope of destinations that major cruise operators offered was pretty limited, but the major players now service a number of remote and exotic destinations and offer cruises of varying lengths for all types of budgets and travelers. Also, if you think about it, cruise operators seem to take a lot of the aggravation out of vacation planning. Included in the price of the travel ticket are often meals, some entertainment and the room. Finally, cruise operators tend to know a great deal about the port cities they visit - and are a free form of travel guides. (To read more about cruiselines, check out Cruise Ships: Reining In Vacation Spending.)

The following chart includes two of the most prominent players in the cruiseline space:

Company	Market Capitalization*	Return YTD*
Carnival Corporation (NYSE:CCL)	$27 billion	-21%
Royal Caribbean Cruises (NYSE:RCL)	$5 billion	-44%
As of Market Close June 24, 2008

Before you get worried about these negative numbers, let me start my analysis by saying I believe they could both see a higher jump in the next few months due to the summer travel season.

Royal Caribbean:
This Miami-based company has been around since 1968, and it has developed quite a reputation over the years as a quality operator that serves the Caribbean, Asia and Europe chiefly.

In the first quarter of 2008, Royal Caribbean's revenue came in at $1.4 billion, which is north of the $1.2 billion it reported in the comparable period in the prior year. The rising fuel prices will have an adverse impact on earnings, and in its Q1 earnings release, the company stated that those prices "increased costs by $60 million in the first quarter 2008, which reduced earnings per share by $0.28." That's a pretty hefty price to pay.

However, in spite of its troubles, analysts are currently expecting the company to earn $2.83 a share this year and $2.97 a share in 2009. That's not too shabby given that the stock is hovering around $24 (as of June 27, 2008). Moreover, in the next five years analysts are expecting the company to grow at an 11.3% clip per annum. Again, that's pretty impressive if the fuel prices don't slow it down. (For more on analyst expectations, read Analyst Recommendations: Do Sell Ratings Exist?)

Another bonus to choosing Royal Caribbean, is that it pays a dividend. The current yield is about 2.5%.

Carnival Corporation:
I think that Carnival has several attractive features. First, the Miami-based company has a number of well-known brands under its umbrella including: Carnival, Princess and Holland America. And the number of choices travelers have in terms of ports/destinations is top notch. In addition, it operates 85 ships, and its fleet is scheduled to grow by 21 by 2012.

Unfortunately however, the company, like Royal, hasn't been immune to the recent economic pressures and rising fuel costs. In fact, in its second quarter earnings report, CEO Micky Arison said, "Higher fuel prices cost the company $158 million, or $0.19 per share, during the quarter." They lost less than Royal, but are still taking a fuel price hit.

Currently analysts are expecting the company to earn $2.82 a share this year and $2.84 a share next. Now that's not overly impressive, but I still believe that the stock remains a good long-term play. The stock pays a dividend, and the current yield is about 4.7%. (Be sure to read The Importance Of Dividends to learn more on this valuable distribution.)

Bottom Line:
There are no sure things in life. However, I think that summer and/or the latter half of the year could be an exciting time for cruise operators.

By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

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