Carnival's rough seas open opportunity for investors

The cruise line is suffering from a string of nasty incidents, sullying its image. But it should weather this storm and provide good future returns.

By Jonathan Berr Mar 18, 2013 12:23PM
The last year or so hasn't been smooth sailing for the world’s largest cruise company. In January 2012, its Costa Concordia ran aground off the coast of Italy and partially sunk, killing 32. A fire crippled the Carnival Triumph last month and left the ship without power -- and made its toilets inoperable, creating disgusting and unsanitary conditions for all aboard. A tugboat was needed to rescue the stranded vessel.

Power failed on the Carnival Dream earlier this month while the vessel was docked in the Caribbean island of St. Maarten. Its toilets also failed, turning a dream vacation into nauseating nightmare. Yet another mishap occurred on a Carnival vessel over the weekend, when the Carnival Legend was forced to scrap a stopover in the Cayman Islands because of a technical problem.

Not surprisingly, the company is conducting a comprehensive safety review of all its ships, which seems to be long overdue.

Individually, these reports are disturbing, but the fact that these incidents came so close to one another has created a public relations crisis for Miami-based Carnival. These problems are weighing on the company's stock after the company recently slashed its earnings outlook for 2013. Shares of Carnival have plunged more than 9% over the last three months as the overall stock market has hit record highs.

Though the company has its challenges, one of them isn't its product. Cruising is a cost-effective way of taking a vacation, particularly if people want to see different destinations near one another as in in the Caribbean. Ships are basically floating hotels that provide every creature comfort imaginable and enable vacationers to do as much or as little as they want.

When things go wrong on cruise ships, though, the results can be disastrous. Ships can become ideal breeding grounds for germs. Power failures can turn luxury vessels into floating outhouses when wastewater treatment systems break down. The vacation horrors can be costly for cruise ship operators because thousands of passengers may need to be transported, fed and lodged.

Wall Street, though, isn't ready to abandon ship on Carnival, and neither should investors.  The recent fall in the stock price indicates sentiment regarding the stock is lukewarm at best. However, for those willing to take on some risk, Carnival is worth the gamble.

For one thing, the average 52-week price target on the stock is $42.08, more than 20% above where it currently trades. Carnival's price-to-earnings ratio is 21.45, under its five-year high, indicating it's a compelling value as does its recent, better-than-expected quarterly earnings.

Cruising is a good deal for vacationers and will become even more attractive as the economic rebound continues. That rising tide will left all boats, even those owned by Carnival.

The company may be in rough seas now, but they won’t last forever.
Mar 18, 2013 1:39PM
Carnival has gone above and beyond to make amends to their passengers. I had friends on the Triumph and they reported that almost everything the media reported was a lie. Their fellow passengers were hoarding food and not following the crews instructions about using the restrooms. The staff went above and beyond to make sure the ship was sanitary. There are those that will complain about everything and the "sue birds" will be flying fast and furious. I certainly wish the economy would rebound for me. I'd be on board a Carnival ship tomorrow. However, the economy is worse for me than it was last year. My paycheck is back to where it was 6 years ago and gas and groceries are at an all-time high. The Concordia was caused by human error because the captain was too busy trying to get a young lady into his bed. The past 3 ships have been mechanical problems, perhaps these are the result of human error, too. Don't jump ship until the facts are known. Cruising is a marvelous vacation and Carnival provides a fabulous value, under normal circumstances.
Mar 18, 2013 1:30PM
Do people quit flying after a plane crash? I would cruise on Carnival . The media hype is the bad part of any tragedy, not that any of these three incidents were "tragedies"
Mar 18, 2013 2:24PM
We were on the Carnival Dream last week and need to tell everyone do NOT believe the news they take a few people who  make there story interesting and just report them. No one wanted to talk to us ,beause we had a Wonderful time . We have been on many cruises and the staff of THE DREAM were the best. We had all services avaiable to us great food , hot water and working elevators and toilets!!!!! Please take into consideration these news people are all about rumors and don't check their facts .
Mar 18, 2013 1:27PM
We have taken several cruises, all with Carnival, have never been unhappy with any of our trips.  One time there was a health emergency on board, we had to take a detour to a closer island, we were reembursed for ou missed excursion and given $$$$$ credits to spend on the ship.
Mar 18, 2013 1:43PM
We just returned from our Carnival Cruise this past week.  We had no problems whatsoever and will definately book one again soon.  And as a matter of fact we heard from someone on the most recent cruise ship "disaster" that states things were no where near as bad as the media was portraying.  They said people who were being interviewed were exaggerating the situation and in some instances not truthful at all. 
Mar 18, 2013 2:19PM
i was on the dream....and not even half of this article is true.. its the media that gives the co. a bad name.... i will get on any carnival ship today and not think twice about it.... i feel so sorry for or two passengersyells wolf and then the media takes over and spoils it for all....shame on you................ mouse
Mar 18, 2013 1:48PM
We have been on many cruises with Carnival - Service and crew has been great.  Sorry they are having problems.  Maybe lowering cruise rates as promo will help them back some of those past customers.  Need better family rate plans.
Mar 18, 2013 2:00PM
I currently have a carnival cruise booked for this October and I can't wait! I'm not the least bit nervous. I have cruised with Carnival in the past, along with Norwegian, and Royal Carribbean. I have had a blast on all of them. Cruising, by far, has the been the best and cheapest vacations I've ever had and would much prefer them over other types of vacations. Each time you get in a car, board a bus or a plane, etc., there's always a possibility of some kind of difficulty. It is unfortunate that Carnival has experienced these events in a short period of time. It is natural for that to freak everyone out.
Mar 18, 2013 2:34PM
OMG.  Get your facts straight.  I read a review from a passenger on the Triumph and according to them it was nothing like what the press reported and is reporting again.  Most of the toilets were operable and the ones that had issues were because some passengers didn't do as asked when they were testing the system.  There were not disgusting and unsanitary conditions unless a passenger decided to make it so by not following the rules.  I'm sure it wasn't anybody's idea of a great vacation, but stuff happens and I think Carnival went the extra mile to make amends.  As for the Dream, they didn't lose power.  A BACK-UP generator failed during a scheduled test and despite the fact that they were cleared to sail by all maritime authorities,  A handful of public restrooms were down for a few hours while they ran tests.  Carnival felt it prudent not to sail with out a back up system and go through the expense of flying everyone back AND compensating them as well.   "a nauseating nightmare"??  Hardly.  What's nauseating is the media's focus on sensationalism and attention grabbing false headlines.
Mar 18, 2013 1:52PM
I love cruising . Just booked a cruise/tour to Alaska for June 2014 on Royal Caribbean.
Mar 18, 2013 2:41PM
I've been on 2 Carnival cruises and am getting ready to go on my 3rd. After having been around their ships and crews, I can tell you that they are run as professionally as anyone can expect.  I know the press loves to jump on and sensationalize things but the truth of the matter is that anything can happen anywhere and the very best you can do is never stop working and preparing for when these things occur to minimize the danger. I spent a lot of years on ships and can tell you from experience that a fire at sea is no joke.  As disgusting as it was for those people on the Triumph, they need to thank that crew for saving their lives!
Mar 18, 2013 3:13PM
Cruised on Destiny in January.  Last one before going into dry dock for renovation, to emerge as Carnival Sunshine.  Delayed leaving Miami for a thruster issue and needed a tug to help us out of the harbor.  Nassau required two tugs probably because of the narrow channel and swift currents.  There we were tied up with half a dozen other bright, clean, shiny cruise ships and ours was the only one with "donuts" on all four corners from the big tires on the front of the tugs.  Cruised on Valor last November, taking Glory next month and Breeze in November.  Never had a problem with Carnival but with thousands of sailings per year you have to expect a glitch now and then.  Hey, sometimes ship happens.  I'd rather be stuck on a ship for a few days than spend ten hours on an airplane sitting on the tarmac.
Mar 18, 2013 3:14PM
I am sick of hearing "and made its toilets inoperable, creating disgusting and unsanitary conditions for all aboard".. this is NOT true. I have a friend who was on this boat and she said the unsanitary conditions were because someone went to the bathroom in a toilet they were not supposed to and when they tested the systems it made it over flow. They said there was always people cleaning things up and doing what they could to help each passenger. I will always cruise Carnival and stand behind them 100%... The media is lying and this is wrong.
Mar 18, 2013 3:34PM
I would much rather have a mechanical failure on a boat then i would on an airplane.
Mar 18, 2013 1:36PM

Like anything mechanical, Preventive Maintenance is critical.  Like the old Fram Oil Filter commercial said: "You can pay me now or pay me later!"

Unfortunately,  Later is NOW for Carnival!


I cruised with Carnival for my honeymoon and it was awesome.  I'm sorry that these passengers encountered issues with their ship, but my experience was flawless.  The company and crewmembers went out of their way to make sure my wife and I had a great time.  The room service was amazing, the dinner service was top notch and the general amenities were outstanding as well.  The drink of the day was delivered to each person with a smile.  Matter of fact, I didnt find a single staff member that wasn't smiling.  Even the janitors!


I would definitely cruise with Carnival again even though they had some issues recently.  It's hard to fault the company for mechanical issues.  I work in maintenance and I can tell you that all the care and servicing in the world can't prevent all problems from occurring.  Sometimes things just happen.  It appears Carnival has offered complimentary services to those who were inconvenienced.  What more is required? 


I don't agree with those that sue a company over stuff like this.  This was not deliberate and willful wrongdoing.  It was a mechanical malfunction.  Go easy on them!

Mar 18, 2013 3:11PM
I went on my first cruise last year on carnival cruise after 34 years of marriage and we had a great time except for two or three ****s whom u find on land or sea everything was great starting WITH THE STAFF.
Mar 18, 2013 4:31PM

We went on the Carnival Valor in January and had booked 3 more cruises for this year to up grade our status to Platinum.

Get back in top shape Carnival 

Mar 18, 2013 2:16PM
Great for first time cruisers and families and party folks and those on a budget......Been on Carnival twice....stepped up to Royal Caribbean....first class, great people few kids excellent service from the moment you get on the ship. Only way to go....
Mar 18, 2013 2:06PM
I went on my first cruise this past January and loved every minute of it. I cruised Royal Caribbean and I would take another cruise but I'm skeptical of Carnival. The problems on three different ships in a short period of time make me think they don't do much in the way of preventive maintenance.
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Killer Companies is a look at companies in the headlines that are killing it and getting killed in the market today.


There’s a problem getting this information right now. Please try again later.
There’s a problem getting this information right now. Please try again later.
Market index data delayed by 15 minutes



Quotes delayed at least 15 min