Value Expert Eyes Flights and Cruises

07/10/2017 2:50 am EST


Chris Quigley

Contributing Editor, The Prudent Speculator

As value investors, our focus is always on the long-term, says Chris Quigley, contributing editor to The Prudent Speculator. Here, he reviews a two recommendations — an airplane maker and an operator of cruise ships.

With the economy muddling along, sentiment measures showing little in the way of investor euphoria, interest rates remaining extremely low by historical standards.

This makes dividend yields on equities very competitive with fixed income yields, and valuations (especially for our holdings) continuing to be reasonable, we see no reason to alter our optimism for the long-term prospects of our broadly diversified portfolios.

That said, we understand that volatility is always a part of the investment process and equities are constantly at risk of a pullback, while individual stocks will often see their prices gyrate far more than the major market averages.

Aerospace and defense giant Boeing (BA) had a terrific showing at the 52nd Paris Air Show, outselling rival Airbus 571 to 326. Boeing’s 737 MAX 10 was the most popular with 147 new orders and 214 conversions (from previous orders).

We continue to like the Commercial Aviation segment, which still has a lot of potential for future growth. Of course, the Services and Defense & Space businesses also offer significant growth potential, so we remain very optimistic about BA.

The company did not update guidance at the Paris Air Show and expects to release Q2 results on July 26, 2017, but following the strong orders, our Target Price has been lifted to $218.

Meanwhile, Carnival (CCL) reported its fiscal Q2 2017 financial results on Thursday with the cruise ship operator beating estimates on both the top and bottom lines.

CCL said adjusted earnings came in at $0.52 per share, versus analyst expectations of $0.47, on revenue of $3.94 billion, compared to forecasts of $3.88 billion.

The company expects full year 2017 net revenue yields in constant currency to be up approximately 3.5% compared to the prior year, better than March guidance of up approximately 3%.

Changes in fuel prices (including realized fuel derivatives) and currency exchange rates compared to the prior year are expected to decrease earnings by $0.35 per share.
Taking the above factors into consideration, the company expects full year 2017 adjusted earnings per share to be in the range of $3.60 to $3.70, compared to March guidance of $3.50 to $3.70, and 2016 adjusted earnings per share of $3.45.

We want to continue to highlight our reasons for our long-term optimism on CCL and the overall cruise industry space, which include favorable demographic trends and the fact that there are still meaningful growth markets like China.

These factors are encouraging for global revenue diversification and the ability to rapidly reach a new customer base. CCL shares sport a 2.4% dividend yield. With the continued progress, we have increased our Target Price to $76.

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