Sunday, January 29, 2012

Crisis for Carnival Corporation (CCL)

A couple weeks ago, on January 13, a ship wreck happened off the coast of Italy involving the Costa Concordia, a ship owned by Carnival Cruise Lines Corporation. Carnival is a large conglomerate that owns ships that sail under the brands of Carnival, Princess, Holland America Line, Cunard, and various European, Australian and Asian cruise lines. The company operates 98 ships and also owns many hotels, motorcoaches and domed rail cars. The next trading day after the accident was January 17. The volume for Carnival (CCL) is normally about 4 million shares. On January 17, it was almost ten times that amount. The stock lost about $5 per share, going from about $34 to $29. Lots of people sold CCL that day, no doubt with many people selling short, betting it would go down in the wake of the accident. On December 23rd of last year, one of the company's officers sold 124,000 shares, yielding $4.1 million. The 52 week range for this stock has been from $28 to $47. This is a public relations crisis for Carnival, and no doubt, many will be monitoring the situation to see what happens. It pays to follow the stories in the news. Smart investors not only pay attention to the news regarding stocks in their portfolio, but the news regarding various companies and the overall macroeconomic health of the world, as those factors can have an effect on investments. CCL is a cyclical stock. Taking a cruise is a luxury, not a necessity, so I'd expect this investment to do better as the world economy improves, and people have more disposable income. During 2009, at the height of the economic slow down, the stock was as low as $17 per share, so it has rebounded quite a bit since then. Carnival's key competitor is RCL, Royal Caribbean Cruise Line. Investors are paying 12.6 times earnings for CCL and 9.6 times earnings for RCL. Currently, RCL is $28 per share. Comparing the percentage of total assets to total liabilities, RCL has more debt than CCL. A better dividend yield can be had with Carnival (1.40% vs. 3.30%), but we still need to see how the recent accident will affect Carnival financially. The loss of one of their ships plus the negative press and pending lawsuits could be quite a blow.

*Some information from

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