The news. On Thursday morning (06/14/18) RCL announced it’s acquiring a 2/3 equity stake in Silversea Cruises for $1B. RCL also reaffirmed FY18 EPS guidance despite an incremental $0.25 headwind from fuel/FX because of a stronger 2Q, while citing continued strong demand trends. We believe the guidance and demand commentary is the main reason why the stock rallied 5% on the day given investors needed reassurance in the face of poor sentiment.
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Shares of RCL are down 23% since the peak back in January, and its forward P/E multiple has contracted by 28% from 15.2x to 10.9x mostly due to rising oil/USD and concerns about future supply growth. RCL has undeservedly been hit the hardest in the group, in our view, which we attribute to more exposure to the Caribbean. We think RCL’s valuation has created a very attractive risk/reward and we have three charts to illustrate our view.
We looked at stock ownership for CEOs in our coverage and compared the results to other CEOs in the S&P 500. We also looked at prior periods of open market purchases by C-Level executives, and both charts are shown below. We believe stock ownership is the single best form of shareholder alignment. When executives take this a step further and use their own capital to buy stock in the open market – rather than just accumulating stock options – it’s even more bullish, as executives at that point are also confident enough in the direction of the business based on forward data that only they can see.
Lodging fundamentals have been strong and the stocks have been outperformers YTD despite broad macro concerns that the cycle feels toppy and despite weakness from other cyclical industries like cruise lines, for example. We think there are four key reasons why lodging stocks continue to work: 1) supply growth is likely peaking this year and the pipeline has stopped increasing; 2) demand trends have been modestly improving led by corporate travel; 3) inflation and rising oil prices are generally positive for RevPAR; and 4) lodging REIT M&A has sparked incremental interest.
CCL hosted an investor event today (5/24/2018) onboard the new Carnival Horizon and they also presented at our Global Transportation Conference on Tuesday. Both were not webcasted.
Global supply growth is accelerating into 2020, which remains a contentious topic with investors. In this note we compare current fundamentals to the year 2000 to see what’s changed and why we think concerns are excessive. We’re also hosting a webcast today (05/21/18) at 2 PM ET.
Our 11th Annual Global Transport Conference takes place on 05/22/18 - 05/23/18 in NYC, and we have ~60 Transport, Airline, Cruise, and Auto Retail companies scheduled to present and/or host 1x1 meetings.
Cruise line stocks have not been trading well of late, which we mostly attribute to rising oil prices, and to a lesser extent disclosures on IMO 2020, lingering concerns on supply growth, and macro cycle concerns. Recent price action has been perplexing, and we’ve sensed frustration from many bulls and perhaps even some capitulation from those that are no longer involved in the space.
Interest rates have been rising with the 10-year hitting a new seven-year high this week, which has caused concerns for the broad market. However, historically consumer confidence has risen during rising interest rate periods, and historically it’s been most pronounced with consumers over the age of 55. This would seem to bode well for cruise lines and regional gaming, where the demographic is older. Over 50% of U.S. cruise adult travelers are over the age of 50 and from data we’ve gathered we think about 70% of U.S. regional casino visitors are over the age of 50. Our favorite stocks in these sectors are CZR, RCL, NCLH, and CCL.
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