Morningstar Lowers Valuation for Carnival

Morningstar analyst Jaime Katz lowers her valuation for the cruise ship operator

Alanna Petroff 1 February, 2012 | 10:33AM
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Morningstar analyst Jaime Katz has released an updated, lower valuation for cruise ship operator Carnival (CCL), but still indicates that the company’s shares are somewhat undervalued by the overall market.

The near-term outlook for the company is rather unpredictable, especially taking into consideration the recent Costa cruise ship incident off the coast of Italy, she says. “Commodity prices, weakness in Europe, and the Costa accident” all resulted in a lower valuation.

“While Carnival is the most competitive participant in the cruise industry, we remain concerned that an uncertain economic environment and continued instability in the Mediterranean region could temper the stock's upside potential in the near term. Additionally, the Costa Concordia accident in January will increase earnings risk for at least fiscal 2012,” says Katz.

However, investors should still take into consideration that “Carnival has the largest fleet on the seas; this, aligned with cost-containment initiatives, provides the company with a narrow economic moat [or competitive advantage] and allows it to maintain the lowest unit costs in the industry,” says Katz. “We believe Carnival's market remains underpenetrated.”

Carnival’s cruise ship, Costa Concordia, ran aground off the Western coast of Italy on Friday, January 13th, 2012, killing over a dozen people and causing a public relations disaster for the cruise ship operator. Shares in the company immediately sank by over 15% , but have since recovered some of their losses. Meanwhile, na American legal team announced on Tuesday that it filed a civil suit in Florida, seeking damages for passengers on board the ship.

Here is a look at Carnival's share price fluctuations in January 2012.

Morningstar Premium members gain exclusive access to our full Carnival Analyst Report, including fair value estimate, bull and bear breakdowns, and risk analysis. Not a Premium member? Get these reports immediately when you try Morningstar Premium free for 14 days.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Carnival PLC1,811.50 GBX2.32Rating

About Author

Alanna Petroff

Alanna Petroff  is a financial journalist with Morningstar UK.

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