Welcome to Morningstar. The strong recovery in global travel has surprised many investors, and that’s particularly true of the cruise industry, one of the worst hit sectors during the pandemic. In 2020, people were worried about cruise liners going out of business, for obvious reasons. Three years on and that transformation is dramatic. Our latest stock of the week, Carnival, has been one of the beneficiares. It’s the largest cruise operator in the world and is listed in London and New York. Investors are expecting an update on the summer trading period by the end of the month and we’re expecting a positive trend for summer bookings and brighter outlook for the rest of the year.
Does this mean that growth is fully priced into Carnival shares, especially after a 70% percent gain this year already? Not according to Morningstar analysts. This week the stock dropped into 5-star territory, which means that Carnival is among the most undervalued of the global stocks we cover. Shares are still below pre pandemic levels at around 10 pounds but have a potential upside of 70% on this, our analysts estimate. Rather surprisingly for a company whose ships are surrounded by water, it doesn’t have a moat, or at least at economic one.
While revenues hit a record in the second quarter, analysts remain concerned by the debt and cash flow as interest rates rise. And the company faces still competition from airlines and other travel alternatives. Loyal cruisers will disagree and its brands like Cunard and P&O still have traction with consumers. Can the travel boom be sustained? That’s the assumption, but summer 2024 seems a long way off for investors. For Morningstar. I’m James Gard.
