Tom Stieghorst
Tom Stieghorst

When Carnival Corp. successfully wrested P&O Princess Cruises away from Royal Caribbean Cruises Ltd. (RCCL) in a heavyweight takeover battle in 2003, many observers, including this writer, thought that it was game over.

With Princess Cruises in its stable (not to mention P&O), how could Carnival go wrong? More importantly, with Princess denied to RCCL, how could it compete?

Well I was wrong, and maybe some other people were, too. Sixteen years after the $7.3 billion merger was completed, Carnival is hardly invincible, and RCCL looks to be very competitive.

One indicator is market capitalization, the value assigned to companies by investors in the stock market. Royal has closed the market-cap gap with Carnival significantly over the past 10 years.

In 2009, following the 2008 financial implosion, RCCL was worth $5.4 billion, according to the market, about 20% of the value of Carnival at $26.8 billion. Fast-forward a decade, and the market values RCCL at $24.5 billion, making it 72% as valuable as Carnival, which is valued at $34 billion.

Part of the value gap stems from Carnival's size. Carnival listed assets as of May 31 of $44.5 billion. Assets are a measure of the value of a cruise company's ships, buildings, equipment and intangibles such as brands.

RCCL stated its assets as of June 30 at $29.8 billion, (a number that grew by double digits in the past year, thanks to the acquisition of 70% of Silversea Cruises.)

Carnival has 102 ships, according to its investor relations site; RCCL has less than half that, at 43.

But investors see a greater value in owning RCCL shares at this point, because its assets are viewed as more profitable, all other things being equal, than Carnival's.

Analyst Patrick Scholes, of SunTrust Robinson Humphrey, raised his price target for RCCL after its latest earnings report to $159 a share from $156, based on RCCL's increased forecast for 2019 profits. When Carnival issued its latest report, and cut its forecast for 2019, Scholes revised his price target downward to $65 from $67, saying that Carnival was "in the doghouse" for the moment with investors.

So over the past 10 years, investors have had reason to be happier as RCCL shareholders than Carnival holders (at 70 cents, RCCL investors also get a bigger quarterly dividend than the Carnival payout of 50 cents a share).

None of which is to say things couldn't turn in Carnival's favor as time goes forward. Financial luck, good and bad, doesn't last forever. But RCCL has come a long way since the days of 2002.

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