What Are Carnival's (CCL) Strategies For Long-Term Growth?

Carnival (LON:CCL) Corporation (NYSE:CCL) continues to expand and adopt strategic initiatives to improve performance. Also, the company’s cruise brands are well diversified across diverse geographies, including Asia and Europe, and strategically positioned at various price points within the larger North American cruise market.

Consequently, the stock has gained 9.4% in a year’s time, outperforming the industry’s rally of 7.8%. However, in the past three months, the company has lost its momentum and witnessed a decline of 6.4%. Let’s delve deeper to find out the factors influencing the company’s performance.

Hidden Catalysts

Carnival keeps introducing new flagships to create opportunities for additional demand. In June 2017, the company’s Germany-based AIDA Cruises brand had launched AIDAperla — one of the most environmentally friendly and technologically advanced ships globally. Again, in March, it launched Majestic Princess from Princess Cruises, which is the world's first cruise ship built specifically for the Chinese market.

This Zacks Rank #3 (Hold) company also declared that it will launch four new cruise ships in 2018 as part of its current fleet enhancement strategy. While Carnival Horizon (belonging to Carnival Cruise Line brand) and Seabourn Ovation (Seabourn) are expected to be launched in mid-2018, AIDAnova (AIDA Cruises) and ms Nieuw Statendam (Holland America Line) are slated for a December launch. Currently, Carnival has 18 new ships listed to be included in its portfolio of leading global cruise brands between 2018 and 2022.

Furthermore, Carnival has adopted a strategy to grow beyond its familiar itineraries and capitalize on new markets. In fact, the Asian source market for cruises is expected to continue growing significantly as it becomes more consumer-driven. Carnival is especially optimistic about the growth prospects of the Japanese and Australian markets.

These countries boast a rapidly developing cruise market, with passenger numbers soaring over the past few years that is expected to rise further. Notably, growing middle-class with high disposable income makes these markets an attractive bet for Carnival. Moreover, an increasing number of ports and tourist destinations in Asia offer tremendous growth opportunity for the cruise industry. Moving ahead, the company expects to continue growing its presence in China and throughout Asia.

By 2020, China’s cruise market is projected to grow to 4.5 million passengers, up from 1 million in 2015, per data from the Chinese Ministry of Transport. Also, by 2030, China is expected to become the world's second largest cruise market, after the United States.

Concerns

Carnival intends to make additional investments this year as its brands have identified more revenue generating opportunities. Though these efforts are expected to benefit the company over the long run, these might weigh on near-term margins and earnings. Also, increased investments in advertising and TV programming are driving costs.

Moreover, with a major portion of its revenues coming from Asia and Europe, the company is exposed to the impact of negative currency translation. Strengthening of the U.S. dollar against the functional currencies of the company’s foreign operations is also likely to impact results. Additionally, higher fuel prices are likely to impede earnings growth.

Key Picks

Some better-ranked stocks in the same space are Royal Caribbean (NYSE:RCL) , Cedar Fair, L.P. (NYSE:FUN) and Marcus Corporation (NYSE:MCS) . All these stock carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Royal Caribbean reported better-than-expected earnings in the trailing four quarters, with an average beat of 5.9%.

Cedar Fair reported better-than-expected earnings in the trailing two quarters.

Marcus has an impressive long-term earnings growth rate of 15%.

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