Bookings remain off course in the Caribbean (which represent close to 50% of the company's bookings) because of ongoing hurricane concerns and damage to major ports such as Cozumel and New Orleans from last year's hurricanes. Bookings in Europe and Alaska continued to be strong, however. As a result of near-term difficulties, management reduced fiscal 2006 earnings guidance to a previous range of $2.90 to $3 versus $3 to $3.10. And to make matters worse, one of its Star Princess ships reported a fire onboard in the Caribbean on March 23 that resulted in a death and a number of injuries. As a result, shares dove nearly 5% last week and are down 10% for the year.
As many Fools know, short-term pain in stock performance can lead to an opportunity to hop on board a compelling investment opportunity and reap long-term gains. Carnival may represent one of those opportunities: It has a leading market share in the cruise industry, impressive 20% net margins, and strong historical growth and free cash flow. Management is also known as disciplined in terms of cost control and capital structure. And it has demographics in its favor because of aging baby boomers and expansion opportunities in Europe and China.
Carnival is frequently compared with the No. 2 cruise company Royal Caribbean
Risks include continued high fuel costs, with sudden spikes in fuel having a larger adverse effect on earnings, as it did this quarter. Additionally, terrorist attacks or geopolitical tension tend to hit leisure stocks pretty hard and could hurt Royal Caribbean much harder on account of higher debt levels. The shares usually recover, as they did after Sept. 11, 2001, but they can still be quite volatile. Finally, economic fluctuations influence the amount of discretionary income consumers can spend on cruises.
Indeed, Carnival's results will always be affected by weather, fuel, global politics, and economic cycles. However, the long-term story for Carnival has been one of steady and profitable growth. As the shares are currently trading near their 52-week low after what appears to be an overreaction to weaker near-term results, now just may be a good time to take a closer look at this one. The current dividend yield of 2.1% is another benefit to consider.
One final thing worth noting is that Carnival is a dual-listed company. As a result of a merger with P&O Princess of England in 2003, Carnival plc
For related Foolishness:
Fool contributor Ryan Fuhrmann has never been on a cruise boat, but The Love Boat is one of his favorite shows. Capt. Stubing is his idol. He has no financial interest in any stocks mentioned (that means he's neither long nor short the shares). Feel free toemail himfor feedback on this article.