Cruise operator Carnival (CCL) has had a rough year, but now shares of CCL stock are too cheap to ignore.
CCL stock has barely budged so far this year thanks to a maelstrom of negative publicity, even as the broader stock market has climbed to record highs. This reaction seems to be overdone.
To start, the company, which operates 10 cruise lines including the one that bears its name, has put a few of its problems behind it. Carnival recently righted the Costa Concordia ship that ran aground off the coast of Italy in 2012, killing 32 people. The Carnival Triumph, which was nicknamed the “poop cruise” after a fire stranded the ship at sea for five days, is sailing again after $115 million in repairs and upgrades.
Sure, customers remain leery about the Carnival brand. Despite slashed prices and 115% refunds, the company noted during its recent earnings release that cumulative advanced bookings for the remainder of 2013 are running behind last year’s levels.
But while regaining the public’s trust is going to take time, it will happen. Carnival didn’t get to be the industry leader over the past few decades without learning a thing or two about how to please the public.
Plus, the Carnival brand’s woes aren’t sinking the company’s finances. Instead, the Carnival line historically accounts for about 30% of its parent company’s profits and capacity, and the rest of Carnival’s business is doing just fine. Advanced bookings on the other lines are running higher than last year, according to the company.
Carnival stock doesn’t seen to be getting much credit from Wall Street for that reality, though. While the stock has recovered some in the past three months, Wall Street seems to think it will continue treading water for some time. The average 52-week price target on the stock is just over $38 — a mere 3% above where it currently trades.
Still, some fans are emerging. Goldman Sachs, for one, recently raised its price target on CCL stock from $42 to $44. That translates to upside of nearly 20% — and that estimate may still be conservative.
See, what gets lost amid the drama surrounding Carnival stock is the fact cruises remain a fundamentally sound product. It is a cost effective way to travel to multiple destinations in places like Europe and the Caribbean.
Unfortunately, when things go wrong, they go really wrong. Dream vacations can quickly turn into nightmares. But luckily, that doesn’t happen that often. Most people who take cruises — and I have taken four — have a good time, and that’s why demand will remain for Carnival’s product.
In fact, a survey released earlier this year by a cruise industry trade group found that almost 19% of travel agents surveyed thought this would be their best year ever for cruise sales.
That rising tide — pun intended — should lift Carnival stock. All in all, CCL is not a stock that’s going to pop tomorrow or next week. But it should provide ample rewards for patient investors.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities. Follow him on Twitter@jdberr, or read more at jonathanberr.com.