Carnival (CCL)

The consensus long-term growth estimate is 14% for Carnival and 12% for Royal Caribbean. Even with further compression of price multiples (I actually think the opposite is more likely) the stocks could offer double-digit returns from here.

Based on the current valuation and outlook, I think the choice between the two is a no-brainer in favor of Carnival. It has slightly higher growth expectations, a significantly higher ROE, and similar valuation multiples.

Finally, Carnival’s greater size means it can continue to invest in new ships (which cost hundreds of millions of dollars each) without requiring substantial outside financing. Its cash from operations have exceeded capital expenditures in three of the last four years.[1]

Carnival is the industry leader with 85 ships offering 158,000 lower berths and 22 new ships scheduled to enter service between April 2008 and May 2012. Royal Caribbean has “just” 35 ships and less than half the passenger capacity.

What’s more, Carnival has cornered nearly every part of the cruise market. Its lines include the low-cost “fun ships” of Carnival, the mid-range “Love Boats” of Princess, the upscale, older-skewing Holland America and Cunard to the ultra-luxury Yachts of Seabourn.