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By: Andrea Blomquist, AIM student at
Marquette University
Disclosure: The AIM Equity
Fund currently holds this position. This article was written by myself, and it
expresses my own opinions. I am not receiving compensation for it and I have no
business relationship with any company whose stock is mentioned in this
article.
Summary
•
Carnival plc ADR (NYSE: CUK) is the
largest global cruise company operating through 10 different global brands. CUK’s
business segments include North America and Europe, Australia, and Asia.
•
In FY17 CUK paid out over $1 billion in quarterly dividends, increasing their
dividend twice throughout the year.
•
CUK capitalized on consumer’s change in preferences to experiences over goods,
increasing revenue by 6.8% in FY17, the biggest revenue growth since FY11.
•
Using unique public relations measures like TV broadcasting featuring Carnival
ships, CUK intends to drive revenues even further after strong Q1FY18 numbers
reported from these new tactics.
• Carnival improved ROIC numbers to 9.4% in
FY17 and continue along the path to attaining double-digit ROIC in the coming
years.
Key points:
One
of CUK’s most consistent measures has been their promise of returning excess
cash to shareholders. In FY17, CUK paid
out dividend per share of $1.60, a nearly 20% increase in annual dividend from
FY16. Additionally, CUK committed $600
million to repurchase shares, to bring total invested to share repurchase to
more than $3 billion.
Operating
in a cyclical industry, it’s no doubt CUK has seen it’s share of revenue
volatility. In the years since FY10,
revenues have grown anywhere from 9% to -2%, leaving investors uncertain about
what the future holds. With excess
volatility hopefully in the rear-view mirror, CUK has seen a steady increase in
revenue over the past two years. Facing
significant headwinds from natural disasters as well as fuel and currency,
diluted EPS dropped slightly in FY17.
Investors didn’t seem to worry as CUK remains operationally stable.
In
hopes to increase word of mouth traffic, Carnival employed several unique PR
efforts in FY17. Carnival partnered with
Univision to develop Ocean streaming and viewing programs through broadcasted
platforms, as well as developing social media games to promote interest
surrounding an Oceanic experience. Other
PR efforts included premiering The Greatest Showman aboard a Cunard ship. Other efforts involve global celebrities to
further develop their brand.
Carnival’s
focus to invest in value-adding projects as well as return excess cash to
shareholders certainly paid off in Fy17.
Improving from last year to 9.4%, its clear that the PR initiatives
described above as well as focus on creating excess demand above capacity has
been working. CUK has set their sights
on double-digit ROIC for FY18, and as these marketing plans continue to play
out, I don’t see why this wouldn’t be reached.
What has the stock done
lately?
Starting
FY18 at a price of $66.96, CUK is currently trading at $64.65. Other than jumping about 7% to $71.67, the
highest of the year, CUK has remained relatively stagnant in the past four
months since the beginning of FY18. The
pop came after reporting strong annual numbers for FY17. Carnival has stayed in
the $63- $66 range for the better part of the year thus far, but as the economy
presses on further into the recovery phase, if CUK can continue to report
strong quarterly earnings, I see positive growth for the stock coming.
Past Year Performance: CUK’s stock performance over the past year
hasn’t been much different than that of the past few months. The stock had two big jumps in the last 12
months, following the ends of Q3 and Q4 of FY17, but outside those, the stock
price has floated around $65 for the remainder of the year. The stagnant price movements in FY17 and into
18 make sense, as CUK was coming off significant EPS growth (FY16) of more than
60%.
Source: FactSet
My Takeaway
While
the past year has been relatively stagnant despite good earnings, ROIC, and
revenue growth, I see momentum building following another strong reported
quarter. The AIM International Equity
Fund has held CUK since December 2015, and the stock has increased 23% within
that holding period. In combination with
their revenue turnaround and creative marketing efforts, CUK will return to a
period of growth again. If they can
manage to maintain revenue growth around a 5% CAGR in the coming years, the continued
buzz and tailwinds from CUK’s creative public relations efforts will be the
catalyst to push the stock into a higher trading range.
Source: FactSet
