When a company faces some type of major challenge or even a disaster like the British Petroleum (BP) oil spill, it can present a buying opportunity, if the stock drops to bargain levels. Sadly, the Costa Concordia cruise ship recently ran aground off the coast of Italy and this tragedy continues to unfold in terms of human life, possible environmental issues as well as the financial losses. That cruise ship is owned by Carnival Corporation (CCL) and the stock was impacted initially by the disaster as it fell from about $34 per share just before the disaster, down to about $29.50. The stock has started to rise slightly off recent lows. Unfortunately, the stock does not deserve to be rising yet. After all, the stock was trading for about $30.50 per share just a few weeks ago, well before this major incident. In early October, the stock was trading at about $29 as well.
The headlines surrounding the Costa Concordia are likely to persist and perhaps even get worse if the ship starts to break apart and spill what could be very significant amounts of fuel. Cruise lines might be forced to discount fares in the coming weeks and months and the capsizing of the ship could make some consumers think twice before booking a cruise. There is certain to be many legal claims and there is always the possibility that the insurance companies could dispute some or all of the losses. This could further impact financial results and legal expenses for Carnival. In addition, the cruise lines face other challenges such as high fuel expenses, weakening demand from shell-shocked European consumers, as well as foreign currency exchange rates that could negatively impact results. Many investors who bought BP shares too early ended up with losses as the spill and the headlines got worse in the days and weeks after the initial disaster. With the situation still unfolding and with plenty of other challenges looming, I would not rush to invest at these levels. The cruise ship stocks were trading at lower prices well before this disaster, so it's hard to believe that some great buying opportunity has suddenly appeared. Here is a closer look at two leading cruise lines, which do not appear to be bargains yet:
Carnival Corporation is one of the largest cruise line companies in the world. The company owns brands including: Carnival Cruise Lines, Seabourn, Holland America Line, Princess Cruises, Cunard, AIDA, Cunard, Ibero Cruises, P&O Cruises and the now infamous Costa Cruises. This stock was trading below $30 in late 2011, and even after the cruise ship disaster off the coast of Italy, the stock is now at higher levels. The company has many other challenges and is highly exposed to the weak European economy since many of their European-based cruises rely on local consumers. With all these issues likely to remain, this stock is likely to be a value trap at best, and most likely it will see additional downside. More bad news, legal issues, downgrades and reduced earnings guidance could drive the stock to new lows in the coming weeks.
Here are some key points for CCL:
Current share price: $31.58
The 52-week range is $28.52 to $47.71
Earnings estimates for 2011: $2.43 per share
Earnings estimates for 2012: $2.80 per share
Annual dividend: $1 per share, which yields about 3.2%
Royal Caribbean Cruises (RCL) is a leading cruise line and one of Carnival's main competitors. This stock was trading around $19 in October, 2011, and it has been on a steady rise since. This company has less exposure to a weak European economy when compared with Carnival, however, it still could suffer from reduced cruise bookings and lower margins. It also could find the foreign currency exchange rates, and rising fuel costs to be challenging. Since this stock was trading for so much less just about 2-3 months ago, it's hard to consider it as a bargain at nearly $30. I would wait for pullbacks below $25 before considering a buy.
Here are some key points for RCL:
Current share price: $28.33
The 52-week range is $18.70 to $49.76
Earnings estimates for 2011: $2.75 per share
Earnings estimates for 2012: $3.02 per share
Annual dividend: 40 cents per share, which yields about 1.4%
Data sourced from Yahoo Finance. No guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.