You can hardly blame investors in dual-listed Carnival (NYSE:CCL) (NYSE:CUK) for feeling a bit seasick. After all, these hardy souls saw shares of the world's largest cruise-ship operator decline by close to 10% in 2006, as fears over higher fuel costs and weaker Caribbean bookings during the North Atlantic hurricane season dented investor enthusiasm.

Does this mean Carnival is a sinking ship and that investors should be heading for the lifeboats? I don't believe so. I think Carnival has sailed through the worst of the storm and should show stronger results in 2007. What's more, the long-term thesis for investing in Carnival remains intact -- the company should benefit from its position as the world's dominant cruise operator, from favorable demographic trends in its North American and European markets, and from margins that are consistently superior to those of its competitors. 

But let's take a closer look, just to make sure I haven't lost my Foolish mind.

Sunnier weather
After enduring a rough first half of fiscal 2006, Carnival rebounded strongly in the second half of the year. Lower fuel prices and strength in the company's European operations enabled it to end the year with a 7% increase in annual sales to $11.8 billion and a 2% gain in profits to $2.28 billion, or $2.77 per share. According to First Call estimates, analysts are expecting Carnival to post earnings of $3.02 in 2007 and $3.45 in 2006, for an implied earnings growth of 9% and 14%, respectively. This acceleration in profit growth reinforces my belief in the company's long-term growth opportunities.

The long haul
Boasting a fleet of 81 ships, with an additional 20 ships due to be delivered between now and spring 2011, Carnival is the world's largest operator of cruise ships. In terms of market share, Carnival is also the undisputed king; with a roughly 60% share of the global cruise market, it's well ahead of the 25% market share that its nearest competitor, Royal Caribbean Cruises (NYSE:RCL), holds. In an industry in which size gives a competitive advantage in terms of pricing power with travel agents and the ability to spread fixed costs (maintenance, berthing costs, and the like) over more ships, Carnival certainly enjoys the fruits of its success. According to Morningstar Research, Carnival has historically boasted operating margins that are 6 percentage points better than Royal Caribbean's.

The sheer size of Carnival, in terms of its fleet and market share, bodes well for the company's long-term prospects, given the favorable demographic trends in the North American and European markets. Simply put, the affluent populations in both regions are aging: In the mid-1990s, approximately 15% of the European Union's population was older than 65, and that number will increase to more than 20% by 2020. Similarly, in the U.S., the percentage of the population older than 65 will have grown from 12% in 1991 to 18% in 2020. As the baby boomers retire, they will have more time and money to spend on leisure, and cruises seem to be a vacation of choice for the 65-and-up crowd, given that the global cruise industry has grown by a healthy average annual rate of 8% since 1980.

Foolishly put, Carnival is experiencing a rebound in its growth rate, is the dominant player in a market benefiting from favorable demographic trends, and has a history of posting the strongest margins in its industry. The icing on the cake is that Carnival's valuation is pretty reasonable. At a recent price of $44 per share, Carnival trades at roughly 13 times forward estimates and a 13% discount to its long-term projected growth rate ... and that doesn't take into account the none-too-shabby dividend yield of 2.4%. All told, I'd urge investors to stay the course with shares of Carnival. Though the seas might not always be calm, you'll eventually be rewarded.

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Fool contributor Will Frankenhoff is enjoying his time writing for the Fool more than reading The Financial Times, rooting for the Jints, or taking a nap. He welcomes your feedback at elves1us@yahoo.com. He does not own shares in any of the companies mentioned above. The Fool has a disclosure policy.