Royal Caribbean Cruises Ltd. (NYSE:RCL) owns five cruise brands, including Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Club Cruises, and CDF Croisières de France. Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) operates 11 ships offering cruises in North and Central America, the Caribbean and the Scandinavian regions. Carnival is the largest operator with a fleet of 100 cruise ships under the brand names of Carnival Cruise Lines, Holland America Line, and Princess Cruises among others.
Performance and valuation
Carnival’s most recent quarterly revenue declined 2% compared to Norwegian Cruise Line’s 2% increase. On the other hand, Royal Caribbean Cruises Ltd. (NYSE:RCL)’s revenue increased 4% year-over-year. The three companies’ gross margins differ by a single percentage point; with Norwegian Cruise Line having 35%, Royal Caribbean Cruises Ltd. (NYSE:RCL) 34%, and Carnival 33%.
Norwegian Cruise Line’s operating margin significantly trumps Carnival’s 11%, at 16%, while Royal Caribbean Cruises Ltd. (NYSE:RCL)’s stands at 12%. Carnival’s trailing 12-month EPS stands at $0.22 per share, as compared to Norwegian Cruise Line’s $0.37, while Royal Caribbean has the best earnings per share at $1.93, cumulative for the company’s last four fiscal quarters.
In terms of valuation, Carnival seems to be the cheapest among the trio with a price to earnings ratio of 18.07 times, compared to Norwegian Cruise Line’s 82.78 and Royal Caribbean’s 155.69. This is indicative of the company’s current outlook, which is dimmed by recent tragedies and discounted pricing.
The picture is very clear when we factor in the average earnings growth rate for the next five years. Carnival’s price to earnings growth rate (PEG) of 1.53 times is the highest, indicative of expensive pricing, as compared to Royal Caribbean’s 0.73, and Norwegian Cruise Line’s 0.72.
The bottom line
Carnival is down 7.6% this year, and certainly shows no realistic chance of going higher right now. Splitting the roles of the chairman and CEO is a good thing, but is unlikely to result in any significant positive changes as far as revenue is concerned. As noted earlier, the change might be more theoretical than practical.
Additionally, the cheap pricing will likely continue to affect the company’s margins through 2014, which will put more pressure on the stock price. Carnival will take longer to convince a sizable number of customers to rejoin its Carnival brand, which accounts for a majority of the company’s inventory. Considering these, it might only be a matter of time before this rally ends.
The article This Stock’s Recent Rebound Is a Sucker Rally originally appeared on Fool.com.
Nicholas Kitonyi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Nicholas is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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