On its face, the third-quarter earnings report from cruise operator Carnival Corp. (NYSE:CCL) was pretty lackluster. There was no growth in profits — which came to $1.33 billion, or $1.71 per share — but the company managed to beat Wall Street estimates of $1.43, helping give CCL shares a little bump in Tuesday trading that mostly faded away by the end of the day.
Still, despite a tough economy and a massive disaster to start the year, Carnival has been able to find ways to keep moving forward, posting stock gains of 16% — and that’s including the massive dip CCL took after the Costa Concordia crash, which claimed the lives of 32 people.
A big help has been Carnival’s laser-focus on cutting costs, though the company also received a hand from a drop in fuel prices — a trend that also benefited Carnival’s main rival, Royal Caribbean (NYSE:RCL), whose stock is up about 25% for 2012.
However, perhaps the biggest advantage for Carnival is its scale as the world’s largest cruise operator. In addition to the Carnival name, the company has an assortment of top brands like Holland America, Princess Cruises, Cunard Line (U.K.), AIDA (Germany) and P&O Cruises, as well as a tour company.
Carnival also has plenty of growth opportunities, especially for the long-term. CCL’s penetration rate in North America is a scant 3.1% of the total population — which is enormous compared to Europe, where it’s just 1.2%.
What might send that statistic in the right direction is the aging of the baby boomer population; those with the means will want to travel in retirement, and cruises are one of the easiest and most cost-efficient ways to see broad parts of the world.
One of the most surprising things, however, is consumer reaction post-Concordia. Despite getting torched by both investors and customers (in the form of outcry), the reaction was short-lived, and the company has been able to find ways to improve bookings, which were up 9% in this most recent quarter.
And another thing that can’t be ignored is how absurdly high the barrier to entry is. After all, it’s pretty expensive to build a new cruiseliner, meaning Carnival really only needs to focus on its entrenched competition.
In terms of the financials, Carnival looks attractive, sporting a reasonable forward price-to-earnings ratio of 15 and a 2.7% yield. With supportive demographic trends — and as long as fuel prices hold out — there might be some nice upside surprises on the horizon.
All in all, Carnival looks like an appealing way to play a core part of the travel business.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.