We remain Neutral on
). Although the cruise company's better-than expected third
quarter fiscal 2013 results impressed us, some near term concerns
keep us on the sidelines.
Why the Reiteration?
On Sep 24, 2013, Carnival reported fiscal third-quarter 2013
adjusted earnings of $1.38 per share, which beat the Zacks
Consensus Estimate of $1.30 by 6.2%. Revenues of $4.73 billion in
the quarter were also ahead of the Zacks Consensus Estimate of
$4.64 billion by nearly 1.9%.
Management expects its struggling Costa brand to swing back to
profitability by the end of 2013, after a year of the Costa
Concordia accident. Carnival's ship, Costa Concordia suffered a
tragic accident in mid-Jan 2012 on the west coast of Italy. The
tragedy shattered passenger confidence and resulted in subdued
Management expects Costa's revenue yields to be up in the
fourth quarter of fiscal 2013, following the lap of the ship
grounding disaster. Overall, the recovery process is on track and
the company expects to see positive pricing comparisons from the
second half of 2014.
CARNIVAL CORP (CCL): Free Stock Analysis
CEDAR FAIR (FUN): Free Stock Analysis Report
LIVE NATION ENT (LYV): Free Stock Analysis
REGAL ENTMNT GP (RGC): Free Stock Analysis
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Carnival has adopted a strategy to grow beyond its familiar
itineraries and capitalize on Asian opportunities. One such
initiative is the formation of Carnival Japan, Inc., which will
cater to the fast growing Japanese market.
Despite these promising facts, we are cautious on Carnival.
In Europe, where the Costa Concordia disaster took place, the dip
in bookings has been steeper. A relatively weaker economy and
less familiarity with cruising were the other reasons for the
downside in bookings in the recent times. Though the Costa
scenario has improved, benefiting from the marketing initiatives
taken by the company, we are yet to see the momentum of the
Further, several operational issues are taking a toll on Carnival
of late. Its ships have been facing one accident after another,
all of which had a sharp negative impact on bookings. The engine
of Carnival's Triumph cruise ship, carrying around 3,000
passengers in the Caribbean, caught fire in early Feb 2013.
Again, in Mar 2013, Carnival's ship, the Carnival Dream was
docked in the Caribbean due to equipment problems, adding to the
In order to improve its fleet-wide efficiency and ensure better
safety for its passengers, Carnival announced a new program worth
$300 million in Apr 2013. Moreover, the company plans to invest
nearly $600 to $700 million to improve its entire cruise
operations and enhance guest satisfaction thereby weighing on its
Finally, Carnival tightened its earnings guidance for fiscal 2013
to $1.51-$1.57 from its previous guidance of $1.45-$1.65. The
company trimmed its earnings guidance in view of the expected
higher-than-expected fuel prices and increased cruise costs.
Carnival currently carries a Zacks Rank #3 (Hold). Others players
in the leisure and recreational services industry, which look
attractive at current levels include
Cedar Fair, L.P
Live Nation Entertainment, Inc.
Regal Entertainment Group
), all carrying a Zacks Rank #2 (Buy).