The New Carnival: A Treat Instead Of A Treatment

|
 |  About: Carnival Corporation (CCL)
by: Little Apple

Carnival (NYSE:CCL) has been getting slammed in the press for the last 18 months beginning with the Costa Concordia disaster. There have been so many recent "episodes" that many analysts have questioned whether the company was being sabotaged. And now Jim Cramer is "screaming" sell. Yet the stock remains steady, versus companies like Apple (NASDAQ:AAPL) which eventually fell 50% on bad news. Since March the shares have underperformed when compared to the major market indices, however there has been no real change over the last year:Chart forCarnival Corporation

There was a "Death Cross" this Spring when the 50 day MA fell below the 200 day MA, yet the price remained relatively flat:

Chart forCarnival Corporation (<a href=

And according to Yahoo, major institutions still own significant chunks of the company (29%):

Top Institutional Holders of Carnival

Holder Shares % Out Value* Reported
Northern Trust Corporation 46,444,888 7.84 1,593,059,658 Mar 31, 2013
Price (T.Rowe) Associates Inc 41,146,350 6.95 1,411,319,805 Mar 31, 2013
Suntrust Banks, Inc. 38,576,895 6.51 1,323,187,498 Mar 31, 2013
Barrow, Hanley Mewhinney & Strauss, Inc. 23,689,337 4.00 812,544,259 Mar 31, 2013
State Street Corporation 20,332,197 3.43 697,394,357 Mar 31, 2013
Vanguard Group, Inc. (The) 20,072,739 3.39 688,494,947 Mar 31, 2013
Primecap Management Company 15,264,357 2.58 523,567,445 Mar 31, 2013
BlackRock Institutional Trust Company, N.A. 11,781,699 1.99 404,112,275 Mar 31, 2013
Oppenheimer Funds, Inc. 10,651,648 1.80 365,351,526 Mar 31, 2013
Bank of New York Mellon Corporation 10,190,019 1.72 349,517,651 Mar 31, 2013
Click to enlarge
Click to enlarge
Top Mutual Fund Holders
Click to enlarge
Holder Shares % Out Value* Reported
Vanguard/Windsor II 10,876,486 1.84 421,137,537 Jan 31, 2013
Vanguard Total Stock Market Index Fund 6,203,291 1.05 212,772,881 Mar 31, 2013
Vanguard/Primecap Fund 5,234,800 0.88 179,553,640 Mar 31, 2013
Vanguard 500 Index Fund 4,222,993 0.71 144,848,659 Mar 31, 2013
Vanguard Institutional Index Fund-Institutional Index Fund 4,175,370 0.70 143,215,191 Mar 31, 2013
American Mutual Fund Inc 4,080,000 0.69 139,944,000 Mar 31, 2013
Price (T.Rowe) Value Fund 4,105,000 0.69 140,801,500 Mar 31, 2013
SPDR S&P 500 ETF Trust 4,056,286 0.68 139,982,429 Apr 30, 2013
Oppenheimer International Growth Fund 3,741,830 0.63 133,845,259 Feb 28, 2013
Price (T.Rowe) Equity Income Fund 3,500,000 0.59 120,050,000 Mar 31, 2013
Click to enlarge
Click to enlarge

Cramer is most upset about Carnival's most recent guidance:

At the time, Carnival told us that the incident would ding their earnings per share by 8 to 10 cents in the first half, but it turns out that was way too optimistic. In mid-March, the company cut its full-year guidance from the $2.20 to $2.40 range down to $1.80 to $2.10. And then last month, they lowered their earnings forecast again, taking it down to $1.45 to $1.65.

Here are the latest earnings estimates from Yahoo Finance :

EPS Trends Current Qtr.
May 13
Next Qtr.
Aug 13
Current Year
Nov 13
Next Year
Nov 14
Current Estimate 0.06 1.40 1.62 2.28
7 Days Ago 0.06 1.40 1.62 2.28
30 Days Ago 0.07 1.62 1.97 2.59
60 Days Ago 0.07 1.64 1.98 2.62
90 Days Ago 0.29 1.74 2.35 2.94
Click to enlarge

So why has the stock not plummeted? The short answer is Revenue. It is expected to be up in spite of everything that's happened. If the high estimates are right, it could be up over 1.3 billion dollars next year:

Revenue Est Current Qtr.
May 13
Next Qtr.
Aug 13
Current Year
Nov 13
Next Year
Nov 14
Avg. Estimate 3.56B 4.71B 15.48B 16.34B
No. of Analysts 12 12 17 17
Low Estimate 3.48B 4.59B 15.26B 15.69B
High Estimate 3.61B 4.88B 15.87B 16.77B
Year Ago Sales 3.54B 4.68B 15.38B 15.48B
Sales Growth (year/est) 0.50% 0.50% 0.60% 5.60%
Click to enlarge

Photo

Things are Changing Radically at Carnival

I admit that I was one of the company's biggest critics last year when Carnival management completely mishandled the Concordia disaster. However they appear to be making significant changes regarding passenger rights, safety, and over-all comfort. Many of the changes were planned before the latest incidents. On the Carnival Magic which sails out of Galveston, Texas there are numerous changes. Loading and unloading passengers has been streamlined. Even though its recent June 2 voyage was completely sold out weeks before departure, passengers arrived and were loaded immediately. And, unbelievably, there were more than enough deck lounge chairs available around the various pools:Photo

And the Spa Balcony Cabins are much prettier than rooms on some of the older boats:

Photo

Because of new designs, the ship is able to make the exceptionally choppy Gulf of Mexico seem smoother than the Caribbean Sea. Even going through the eye of a depression with 10 foot swells, which eventually turned out to be Tropical Storm Andrea, the ship did not even rock.

Photo

Photo

When you can visit beautiful ports like Grand Cayman, and Montego Bay while lounging on the new cushioned wicker furniture, dedicated cruisers tend to forget about those few bad incidents on other boats. Especially since Carnival appears to be making formidable changes.

Conclusion

Carnival shares may take a dip with the new lower guidance, and Cramer's ranting. So if you are considering jumping into this stock, now might be a good time to do it. However all stocks are a gamble, and the company will have a lot of expenses in the next year. But, taking a cruise is one of the cheapest vacations anywhere. So I think there will continue to be a lot of people lining up for these trips. And that translates into a lot of additional revenue for the company. The share price is very near the low target of $32. If it hits the high target of $42, that would be a nice $10 a share gain.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.