Carnival Corp. recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visitwww.capitalcube.com.
Carnival Corp.’s analysis versus peers uses the following peer-set: Carnival Corporation (NYSE:CCL), Marriott International, Inc. (NYSE:MAR), Starwood Hotels & Resorts Worldwide, Inc (NYSE:HOT), InterContinental Hotels Group PLC (NYSE:IHG), Wyndham Worldwide Corporation (NYSE:WYN) and Royal Caribbean Cruises Ltd. (NYSE:RCL). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
Valuation Drivers
Carnival Corp.’s current Price/Book of 1.2 is about median in its peer group. The market expects CCL-US to grow earnings about as fast as the median of its chosen peers (PE of 20.3 compared to peer median of 20.3) but not to expect much improvement in its below peer median rates of return (ROE of 5.8% compared to the peer median ROE of 17.0%).
The company’s asset efficiency (asset turns of 0.4x) and net profit margins of 9.2% are both median for its peer group. CCL-US’s net margin is its lowest relative to the last five years and compares to a high of 18.5% in 2007.
Economic Moat
CCL-US’s revenues have changed in-line with its peers (year-on-year change in revenues is 9.2%) but its earnings have lagged (annual reported earnings have changed by -3.3% compared to the peer median of 10.0%), implying that the company has less control over its costs relative to its peers. CCL-US is currently converting every 1% of change in revenue into -0.4% change in annual reported earnings.
CCL-US’s current return on assets is around peer median (3.6% vs. peer median 3.6%). This contrasts with its higher than peer median return on assets over the past five years (6.0% vs. peer median 3.4%), suggesting that the company’s relative operating performance has declined.
The company’s gross margin of 33.5% is around peer median suggesting that CCL-US’s operations do not benefit from any differentiating pricing advantage. In addition, CCL-US’s pre-tax margin of 9.1% is also around the peer median suggesting no operating cost advantage relative to peers.
Growth & Investment Strategy
While CCL-US’s revenues have grown faster than the peer median (2.5% vs. -0.2% respectively for the past three years), the market gives the stock an about peer median PE ratio of 20.3. This suggests that the market has some questions about the company’s long-term strategy.
CCL-US’s annualized rate of change in capital of 5.3% over the past three years is greater than the peer median of 0.6%. However, this investment level has only generated a peer median return on capital of 6.0% averaged over the same three years. This median return on an above median capital investment suggests the company is overinvesting.
Earnings Quality
CCL-US’s net income margin for the last twelve months is around the peer median (9.2% vs. peer median of 8.8%). This average margin combined with a level of accruals that is around peer median (11.6% vs. peer median of 10.2%) suggests there possibly isn’t too much accrual movement flowing into the company’s reported earnings.
CCL-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer median and suggests the company is recording a proper level of reserves compared to its peers.
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