Tags: Carnival | wreck | cruise | CCL

Carnival, Despite Wreck, Retains Huge Cruise Footprint

By    |   Monday, 18 June 2012 12:12 PM EDT

Carnival (CCL) is struggling with a public image problem following the horrific Costa Concordia wreck off the coast of Italy and a subsequent fire on another ship. Despite the headline problems, Carnival retains a huge footprint in the large cruise excursion business and it pays a reasonably strong dividend, yielding nearly 2.9 percent.

Carnival is the largest cruise company in the world. Its portfolio of widely recognized cruise brands are sold in all the world’s major vacation markets and the company is a leading provider of vacations to all major cruise destinations.

In addition to cruise operations, Carnival owns Holland America Princess Alaska Tours, the leading tour company in Alaska and the Canadian Yukon, which primarily complements its Alaska cruise operations. This tour company owns and operates, among other things, 13 hotels or lodges, over 300 motorcoaches and 20 domed rail cars.

On Jan. 13, 2012, Costa Concordia, a cruise ship owned and operated by Costa, grounded off the coast of Isola del Giglio, Italy and sustained significant damage. There were 16 casualties, a number of injuries and 16 people remained missing as of Jan. 26. The ship remains grounded and partially submerged off the coast.

“We are deeply saddened by this tragic event and our hearts go out to everyone affected, and especially to the families and loved ones of those who lost their lives or were injured. They will remain in our thoughts,” Carnival management said in a filing.

“We are committed to providing full support to the passengers, crew and families of those affected by the accident. We are also working to secure the vessel and continue to use our best efforts to ensure there is no environmental impact.”

“The net carrying value of this euro-denominated ship, including ship improvements, at Dec. 31, 2011 was $490 million,” Carnival said. “We have euro-denominated insurance coverage of $510 million ... for damage to the ship with a potential deductible of approximately $30 million as well as insurance for third party personal injury liability subject to an additional deductible of approximately $10 million for this incident. We self-insure for loss of use of the ship.”

Carnival has a market cap of $20.73 billion in a sector, hotels, restaurants and leisure, where the average company size is $6.13 billion. Its trailing 12-month P/E ratio is 16.96 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.43, compared to 1.75 for the sector.

Its projected earnings per share growth for the coming year is 40.49 percent, compared to a sector average of 20.56 percent.

Lingering tragedy

Analysts are broadly positive on Carnival stock, with buy or outperform calls in from UBS, Citigroup Investment Research, Deutsche Bank, and Jefferies.

“We expect the Costa Concordia tragedy to have a lingering but declining impact on Carnival operating results. In early March 2012, Carnival said that from the date of the Costa Concordia incident, through February 26, fleetwide booking volumes, excluding the Costa line, had shown improving trends, but were below those of the prior year, at slightly lower prices,” S&P analysts said in mid-March, in support of a neutral rating on the stock.

“As of late January 2012, the Costa line, excluding the Costa Concordia, had 14 ships, with roughly 15 percent of Carnival's passenger capacity.”

Carnival next reports on June 22.

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Monday, 18 June 2012 12:12 PM
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