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Stock of the week: Carnival

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Ian Forrest, investment research analyst at The Share Centre, picks the world's largest cruise company Carnival as stock of the week.

The world’s largest cruise company, Carnival, is our stock of the week this week. Cruise tourism is becoming an increasingly popular ‘leisure choice’ with holiday volumes up 20%. It is one of the fastest-growing sectors of the tourism industry. This trend is likely to continue and, as the biggest operator, Carnival is in a strong position to reap the rewards.

The socio-economic environment appears to be favourable for the cruise company. A widened global reach is in the pipeline as Carnival has expanded its horizons further with the extension into emerging markets such as China.

Riding on the back of last year’s momentum, the group has turned in strong Q1 figures with net income rising 11% to $391m, and revenue up 10.5% to $4.2bn. Investors should note the shares have outperformed market competitors over the past year, now trading on a 2019 Price to Earnings of 12.7; the dividend yield also outpaces peers at 3.1%. The group is actively responding to increasing demand, boosting its capacity through the purchase of two new cruise ships.

Further increasing Carnival’s attraction for investors is the strong cash flow which has enabled the group to raise dividends swiftly and support a share repurchase scheme. Considering the optimistic growth prospects, we recommend Carnival shares as a ‘buy’ for those willing to accept a medium level of risk and seeking a mixture of income and growth.

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