Carnival (CCL) Shares Trade at Cheapest Level in Years as Value is Overlooked - Barron's
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Carnival Corp. (NYSE: CCL) shares are trading slightly lower Wednesday morning despite a positive outlook from Barron's earlier.
Following the January 13th disaster of the Costa Concordia -- which was operated by a Carnival subsidiary -- shares of the venerable cruise ship operator have dropped 11 percent, erasing billions of market cap in the process. Add to that increasing fuel costs, negative sentiment to the industry, and global economic issues, and Carnival shares have dropped roughly 33 percent over the last year.
But the stock may be at the cheapest point in years, according to some analysts. One from Davidson Investment Advisors, commenting to Barron's, said there's good downside protection in the asset value and Carnival also boasts a solid balance sheet.
Even with the recent economic turmoil, the appeal of cruises is still evident. With a vacation like a cruise, consumers know what they're roughly spending; ships are priced per voyage and things like food and entertainment are generally baked in. There are some extras like drinks and gambling, but those are discretionary. The simple pricing scheme helps Carnival to fill capacity quickly, even as expansion over the last 10 years has been rather rapid.
That growth is slowing though, from a recent rate of 10 percent per year to just about 3 percent per year. The upside to slowing growth is pricing becomes better. Currently, prices are hanging at 2008 levels, indicating a potential floor.
To be sure, Carnival still has lots of PR work to do following the Concordia tragedy, Barron's noted. The ship's captain abandoning ship and delaying rescue efforts didn't help, and -- just to compound things even more -- the first quarter is generally the slower season for operators which cut back on marketing expenses in favor of later months.
Overall expenses directly to Carnival are estimated to be $85 million for the Concordia incident, with insurance covering the lions share. The impact on profit should be about 12 cents per share. Additionally, asset replacement could cost about $29 per share. Adding these components up, Carnival shares are going for just 1.3 times its book value -- cheap by many standards.
So git yer investin' sea legs ready and climb aboard before Carnival's ship leaves the harbor!
Following the January 13th disaster of the Costa Concordia -- which was operated by a Carnival subsidiary -- shares of the venerable cruise ship operator have dropped 11 percent, erasing billions of market cap in the process. Add to that increasing fuel costs, negative sentiment to the industry, and global economic issues, and Carnival shares have dropped roughly 33 percent over the last year.
But the stock may be at the cheapest point in years, according to some analysts. One from Davidson Investment Advisors, commenting to Barron's, said there's good downside protection in the asset value and Carnival also boasts a solid balance sheet.
Even with the recent economic turmoil, the appeal of cruises is still evident. With a vacation like a cruise, consumers know what they're roughly spending; ships are priced per voyage and things like food and entertainment are generally baked in. There are some extras like drinks and gambling, but those are discretionary. The simple pricing scheme helps Carnival to fill capacity quickly, even as expansion over the last 10 years has been rather rapid.
That growth is slowing though, from a recent rate of 10 percent per year to just about 3 percent per year. The upside to slowing growth is pricing becomes better. Currently, prices are hanging at 2008 levels, indicating a potential floor.
To be sure, Carnival still has lots of PR work to do following the Concordia tragedy, Barron's noted. The ship's captain abandoning ship and delaying rescue efforts didn't help, and -- just to compound things even more -- the first quarter is generally the slower season for operators which cut back on marketing expenses in favor of later months.
Overall expenses directly to Carnival are estimated to be $85 million for the Concordia incident, with insurance covering the lions share. The impact on profit should be about 12 cents per share. Additionally, asset replacement could cost about $29 per share. Adding these components up, Carnival shares are going for just 1.3 times its book value -- cheap by many standards.
So git yer investin' sea legs ready and climb aboard before Carnival's ship leaves the harbor!
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