First look at Carnival Corporation (CCL)

I recently took a cruise vacation to Mexico on Carnival Cruise Lines (CCL).  This was my third cruise on Carnival spanning over a decade and I had a wonderful experience each time.  I will cruise with them again.  They treat their returning clients well.  This got me thinking about the company as an investment.

I was pleased to find out that Carnival has a decent dividend yield of 3.0%

Carnival Corporation (CCL)

Market price: $33.25

Shares: 778.42 million

Market capitalization: $25.88 billion

DIVIDEND RECORD

Carnival was a dividend grower until 2009.  They eliminated their dividend for the year of 2009.  In 2010, they began paying a $0.10 quarterly dividend.  Now they are paying a $0.25 quarterly dividend.

Dividend: $0.25 quarterly

Dividend yield: 3.0%  ($1.00 annual dividend/$33.25 market price)

Dividend payout ratio: 40.8% ($1.00 annual dividend/$2.45 EPS according to Google Finance)

Carnival would become a 6% high dividend stock if its market price dropped to $16.66 if they kept their current dividend the same.

EARNING POWER

(Earnings adjusted for changes in market capitalization)

            EPS       Net inc.             Shares               Adj EPS

2006     $2.77    $2,279 M           823 M                $2.93

2007     $2.95    $2,408 M           828 M                $3.09

2008     $2.90    $2,330 M           816 M                $2.99

2009     $2.24    $1,790 M           804 M                $2.30

2010     $2.47    $1,978 M           778.42 M           $2.54

2011E   $2.45E                                                  $2.45E

Six year average adjusted EPS = $2.71

Consider contrarian buying below $21.68 (less than 8 times average EPS)

Consider value buying below $32.52 (less than 12 times average EPS)

Consider investment buying between $32.53 and $54.19 (between 12 times and 20 times average EPS)

Consider speculative selling above $54.20 (above 20 times average EPS)

BALANCE SHEET STRENGTH

I’m concerned about their low current ratio and quick ratios.  They don’t have much current assets or cash assets to pay short term liabilities.  This needs to be investigated before making a buy.

Book value per share: $31.12

Price to BV ratio: 1.06 (good)

Current ratio: 0.22 (over 2.0 is good)

Quick ratio: 0.11 (over 1.0 is good)

CONCLUSION

Wait for a low price below $21.68 after the US recession sets in.  They will revisit the 2008-2009 lows.

DISCLOSURE – I don’t own Carnival Corporation (CCL)

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