Why Is Carnival’s Valuation Low Compared to Its Peers?


Nov. 20 2020, Updated 1:46 p.m. ET

Forward EV/EBITDA ratio

We covered the expectations for Carnival’s (CCL) fiscal 4Q15 results earlier in this series. In this part, we’ll discuss the company’s valuation compared to its peers. The chart below compares CCL to its peers Royal Caribbean Cruises (RCL) and Norwegian Cruise Line Holdings (NCLH).

Capital-intensive companies like cruise lines are best valued using the EV/EBITDA[1. Enterprise value to earnings before interest, tax, depreciation, and amortization] multiple. These companies have high levels of depreciation and amortization, as well as varying degrees of leverage. The EV/EBITDA multiple is neutral to capital structure, making these companies comparable.

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Current valuation

After the earnings, CCL’s forward EV/EBITDA ratio stands unchanged at 10.4x. This is close to its average valuation since 2005, equaling ~10x. CCL enjoyed its highest valuation of 63x during September 2006. It reached its lows of ~5x in November 2008.

Comparison with peers

Carnival has the lowest valuation compared to its peers. Analysts are expecting the lowest EBITDA (earnings before interest, tax, depreciation, and amortization) growth for CCL—related to peers RCL and NCLH—in the next four quarters.

Comparatively, Royal Caribbean Cruises is currently valued at a forward EV/EBITDA multiple of 12.28x. This is higher than the RCL average valuation of 9.5x. Also, EBITDA growth for RCL in the next four quarters is expected to be slightly higher than CCL.

On the other hand, Norwegian Cruise Line had a forward EV/EBITDA multiple of ~13x during the same period. This is close to NCL’s average valuation of 12x. Analysts are estimating a high EBITDA growth of 11% for the next four quarters.

Carnival forms the sixth largest holding of ~5% in the PowerShares Dynamic Leisure and Entertainment Portfolio (PEJ). It also forms 3.9% of the WBI Large Cap Tactical Value Shares (WBIF) and 4.0% of the WBI Large Cap Tactical Select Shares ETF (WBIL).

For more industry updates, please visit Market Realist’s Cruise Lines page.


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