Carnival Corp (CCL) is a large company with a very large marketshare in what it does. In the last quarter the company's capacity increased in North America, Europe, Asia and Australia by about 5% on average. The company's profit margin is increasing in both cruise tickets and services and products sold in the cruise ships. In the last quarter, the biggest issue in front of the company was rising fuel costs, but that is a temporary concern as fuel costs tend to move up and down over time.
In the last quarter the company had to change 300 itineraries due to the unrest in the Middle East-North Africa, the earthquake in Japan and hurricanes in some parts of the world. The cost of such changes to the company was 27 cents per share. The company had a cashflow of $3.8 billion in the last quarter and it spent $2.7 billion on ship expansion and refurbishment.
In 2011, the company purchased three new ships and added them to its fleet immediately. The company expects an operating cashflow of $4 billion in 2012. The company announced that the ticket sales increased in 2011 on a year-to-year basis despite the slowdown and concerns in Europe.
Now, as all this information was announced before the Concordia disaster, why is the company still a buy in my eyes? Here is why. The day after the accident, the company lost about $2 billion in market value. The ship in the accident was already fully insured and the company's share cost is expected to be around 60 to 100 million dollars.
While the company will suffer from lost revenue in the coming months because of the capsized ship, this is a short-term trend. The company could always make up for the lost revenue by bumping up the prices of available ships but I don't even think it will have to do that. The company has more than 100 ships, and the loss of one ship will not hurt the company that much.
As much as lower future demand goes, I don't think it will be an issue either. Accidents happen and it's part of life. Planes, cars, buses, and other vehicles have accidents all the time. Out of thousands of boat trips every year, if one of them ended in an accident, it shouldn't scare people from taking boat cruises just like plane crashes don't really deter people from flying. A few weeks later, some people won't even remember about this accident. So far, travel agencies reported minimal to no cruise reservation cancellations.
In the next few years, millions of baby-boomers will be retiring. Add that to millions of wealthy Europeans, Canadians, Japanese and Australians retiring. Retired wealthy people love nothing as much as boat cruises! I think that new wave of retirees all over the world will add so much to CCL's business in the coming years.
At the time of this writing the stock was already up by 3%. I expect it to move up more in the coming days.