Investors to the Lido Deck

Money Report

moneyreportThe big cruise lines have seen some rough water in recent months.

Despite an admirable safety record, and extremely high ratings by consumers in terms of vacation value for dollar spent, the well documented troubles on the Carnival Triumph this year, and more recently, a fire on Royal Caribbean Grandeur of the Seas, have brought about unwelcome and negative media focus. The images we saw of passengers sleeping on bare mattresses, in hot muddy ship corridors, without bathrooms or food, easily the vacation nightmare of a lifetime, will take a while to fade away, and have kept many potential guests and investors on shore. In addition, a weak European economy has cut into sales, in a market that represents over 21% of cruise destinations. However, over the long- term neither investors nor passengers may be put off.

New ship construction is anticipated to include 10 new ships and one re-launch this year, with 12,125 onboard beds, a capital investment of $2.317 billion. This represents a downward trend from the construction boom of the past few years, addressing an oversupply of ships that has put pressure on profit margins. The forecast for passenger carrying in 2013, according to Cruise Lines International Association, an industry group, is 20.9 million guests; they estimate the market for cruises in the U.S. alone to be 133 million passengers, of whom only 20% have actually been on a cruise. Long term demographics seem encouraging; this type of leisure vacation experience seems tailor-made for aging baby boomers.

While Walt Disney and Co. (DIS) and its four Disney cruise ships is a highly visible and influential player in the industry, its market is very family focused, and it does not break out its cruise results separately. The pure plays for investors remain Carnival Corporation (CCL) and Royal Caribbean Cruises Ltd. (RCL)

Carnival Corporation, with more than 100 ships, is the world’s largest cruise company. In addition to its named fleet, Carnival owns Princess Cruises, Holland America, P&O Cruises, Cunard, Seaborn and Costa Cruises, as well as several smaller lines. It dominates the industry, with recent year revenues of nearly $15.4 billion. Carnival’s stock price, as might be expected, has been hammered by its unwelcome visibility in the media. It currently trades at $32.40, with a range between $31.65 and $39.95 over the trailing twelve months. CCL also pays a generous dividend, offering investors an annual yield of 3%. The stock enjoyed two  ears of exceptional performance in 2009 and 2010, but was a disappointment to investors in 2011, slumping 27%   response to fear of another global slowdown. Last year the stock recovered, gaining over 17%, but has given up 11.86% this year so far.

Royal Caribbean Cruises Ltd. (RCL) is the industry’s second mate, with 2012 revenues of $7.6 billion, and over 40 ships at sea, the company also operates Celebrity and Azamara Club Cruises, in addition to its flagship Royal Caribbean line. RCL has passenger capacity of 84,000, and their fleet includes the largest cruise ship on the ocean, Oasis of the Seas. Royal Caribbean has traded in a range between $22.45 and $38.62 over the trailing twelve months; its current price is $33.28, and offers a dividend yield of 1.4%. Investors have also experienced some big swells with RCL; while the stock recovered strongly from the recession, gaining 83.8% in 2009 and 85.9% in 2010, it collapsed in 2011, erasing nearly 47% of its value. RCL came back in 2012, adding 39%; year-to-date 2013 the shares have fallen a little less than two percent.

Incidentally, there may be a special dividend in store for you if you invest in Carnival or Royal Caribbean. Shareholders with at least 100 shares are eligible for an onboard credit of between $50 and $250, depending on the length of the cruise, and of course, subject to some restrictions (no, you won’t be able to use it in the casino.) If you’ve been on a cruise, you know that casinos and on-board spas are ubiquitous, and an important part of the cruise experience. Two smaller and more speculative investments, Century Casinos (CNTY) and Steiner Leisure, (STNR) have made part of their business model providing outsourced spa and gambling services to cruise lines. Century Casino, based in Colorado, operates a global gaming business, as well as providing casino services to Oceana Cruises, TUI Cruises, Windstar Cruises, and Regent of the Sea. Century has a market cap of $83 million, and currently sells at $3.45 per share. It gained 12.3% last year, and has added 19% thus far in 2013. This may be your chance to recoup some of those on-board losses!

Lots of folks head right for the spa as soon as they board the ship, and often find it hard to leave. Steiner Leisure Ltd. (STNR), with a market cap of $710 million, headquartered in Nassau, Bahamas, provides he spas, the steam, the wraps, the pedicures, and much more to cruise passengers sailing on Royal Caribbean, Celebrity, Norwegian, and Carnival as well as several other smaller lines. Steiner currently sells for $52.49 per share; the stock has rewarded investors with a 7.9% gain year-to-date. Bon Voyage!