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Carnival Shares Shipwrecked
Shares in cruise-line operator Carnival Corporation (NYSE:CCL) dropped by nearly 15% Monday on news that cruise ship Costa Concordia, a ship owned by Carnival, crashed and partially sank. Tragically, the shipwreck left 11 people dead and dozens more missing amongst the 4,200-plus passengers on board the ship. The company, along with the coast guard, is working quickly to minimize any further injury.
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Assessing the Damage
The market's reaction to the cruise ship disaster comes as no surprise. In addition to Carnival shares tanking, rival Royal Caribbean (NYSE:RCL) shares were down over 6% on the news. Concerns that this accident will lead to fewer cruise ship passengers are fair and warranted. Those concerns extended beyond cruise ship operators, however. Steiner Leisure (Nasdaq:STNR), a provider of spa services to cruise ships as well as land based resorts, saw it shares drop 3% on news of the Carnival tragedy. But as often is the case, the market's reaction is to sell first and ask questions later. This was certainly the case with BP (NYSE:BP) and the oil spill in 2010. Yet from the looks of it, the monetary damages and expenses that Carnival will incur as a result of this shipwreck seem to be well defined. The sinking share price seems to also incorporate the loss of business that may occur from the reputational damage that will occur as a result of passengers choosing not to cruise with Carnival or any cruise-line for that matter.
Staying above Water
According to the company, the Costa Concordia cost $573 million and represents approximately 2% of the company's passenger capacity. The company's insurance deductible is $30 million for the vessel and $10 million for injury liability. The company expects that vessel to be out of commission for at least a year and impact net profit by $85 to $95 million or roughly 12 cents a share in 2012. In all likelihood the company will likely encounter some other costs, although those can not be estimated at this time. With around a $3 billion loss in market capitalization as a result of the accident, the market is clearly expecting more costs that won't be borne by insurance.
The Bottom Line
In the end, however, staying above water for Carnival and other cruise lines will be more about the strength of the economy and confidence of the consumer. Many Americans love the convenience of an all inclusive cruise and often, the costs of a cruise are very attractive when compared with a traditional vacation. If the U.S. economy continues to improve and Carnival shares continue to drop, investors may want to keep a close watch on this name. Already the price decline has created a dividend yield of nearly 3% and if nothing gets in the way of that dividend, further declines could send income investors looking for shares. (To learn more, check out Why Dividends Matter.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.
Assessing the Damage
The market's reaction to the cruise ship disaster comes as no surprise. In addition to Carnival shares tanking, rival Royal Caribbean (NYSE:RCL) shares were down over 6% on the news. Concerns that this accident will lead to fewer cruise ship passengers are fair and warranted. Those concerns extended beyond cruise ship operators, however. Steiner Leisure (Nasdaq:STNR), a provider of spa services to cruise ships as well as land based resorts, saw it shares drop 3% on news of the Carnival tragedy. But as often is the case, the market's reaction is to sell first and ask questions later. This was certainly the case with BP (NYSE:BP) and the oil spill in 2010. Yet from the looks of it, the monetary damages and expenses that Carnival will incur as a result of this shipwreck seem to be well defined. The sinking share price seems to also incorporate the loss of business that may occur from the reputational damage that will occur as a result of passengers choosing not to cruise with Carnival or any cruise-line for that matter.
According to the company, the Costa Concordia cost $573 million and represents approximately 2% of the company's passenger capacity. The company's insurance deductible is $30 million for the vessel and $10 million for injury liability. The company expects that vessel to be out of commission for at least a year and impact net profit by $85 to $95 million or roughly 12 cents a share in 2012. In all likelihood the company will likely encounter some other costs, although those can not be estimated at this time. With around a $3 billion loss in market capitalization as a result of the accident, the market is clearly expecting more costs that won't be borne by insurance.
The Bottom Line
In the end, however, staying above water for Carnival and other cruise lines will be more about the strength of the economy and confidence of the consumer. Many Americans love the convenience of an all inclusive cruise and often, the costs of a cruise are very attractive when compared with a traditional vacation. If the U.S. economy continues to improve and Carnival shares continue to drop, investors may want to keep a close watch on this name. Already the price decline has created a dividend yield of nearly 3% and if nothing gets in the way of that dividend, further declines could send income investors looking for shares. (To learn more, check out Why Dividends Matter.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.
by
Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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