So far in 2013, Carnival Corporation (NYSE:CCL) has experienced a downturn on the market. Its share price dropped from $39 per share at the end of January to around $33 per share at the time of writing. Interestingly, one of its directors, Randall Weisenburger, seems to be bullish, accumulating 40,000 Carnival Corporation (NYSE:CCL) shares at around $33 per share, with the total transaction value of more than $1.3 million. Should we follow Randall Weisenburger into Carnival? Let’s find out.
Consistent positive cash flow, strong balance sheet
Carnival’s share price has dropped due to the recent revision of the business outlook for the second half of 2013. The company reported that although it has experienced higher booking volumes, thanks to current cruise ticket pricing, the estimated net revenue would be lower by 2% to 3%, compared to the previous guidance of flat yield revenue. EPS were expected to decrease by around $0.10 per share, due to the increase in S&A costs and voyage cancellations. Consequently, Carnival Corporation (NYSE:CCL)’s EPS was estimated to be $1.45 to $1.65.
What I like about Carnival is its ability to generate consistent positive cash flow. Since 2003, its operating cash flow has fluctuated in the range of $1.93 billion to more than $4 billion. However, because of the high maintenance capital expenditures for the ships, the free cash flow was less promising. In 2012, its operating cash flow was $3 billion while the free cash flow was only $667 million. Carnival Corporation has quite a conservative capital structure in its operations. As of Feb. 2013, it had $23.5 billion in total stockholders’ equity, $476 million in cash and nearly $9.4 billion in both long and short-term debt. The goodwill and intangible amount stayed at only $4.4 billion. Thus, Carnival had a tangible book value at $19.1 billion.
A reasonable valuation with the juiciest yield
At $33.10 per share, Carnival is worth nearly $25.7 billion on the market. The market does not seem to value the business cheaply, at as high as 11 times EV/EBITDA. However, compared to its peers NCL and Royal Caribbean Cruises Ltd. (NYSE:RCL), Carnival has quite a reasonable valuation.
Royal Caribbean Cruises Ltd. (NYSE:RCL) is trading at around $35 per share, with the total market cap of $7.7 billion. The market values Royal Caribbean Cruises Ltd. (NYSE:RCL) just a bit cheaper than Carnival Corporation (NYSE:CCL), at 10.4 times EV/EBITDA. Royal Caribbean is considered the second biggest cruise company in the world, operating in several brands including Caribbean International, Azamara Club Cruises and Celebrity Cruises. Royal Caribbean has kept expanding its fleet. Recently, it has signed a contract to build the third Quantum-class cruise ship, which would be finished by the middle of 2016. Brian Rice, the company’s vice chairman commented, “This order follows our stated goals of moderate growth, driving improved returns and leading to an investment grade rating.“
NCL, the global cruise line company, is considered to have the most modern fleets of cruise ships, with a weighted-average age of more than 8 years. The company reported that it differentiates itself from all major cruise brands by “Freestyle Cruising.. It means that its customers could choose the date, time of dining and they do not have to dress formally. In the first quarter of 2013, NCL experienced a decent rise in its revenue, from $515.4 million in the first quarter last year to more than $527.6 million. However, the net income came in at a loss of $96.4 million. The loss was due to higher costs of marketing, general and administrative, and a much higher interest expense. The adjusted net income was positive at $12.9 million, or $0.06 per share, after adjusting the non-cash share-based compensation related to IPO and debt prepayments. For the full year 2013, the company expected to produce around $1.20 to $1.40 earnings per share. NCL seems to have the highest valuation of the trio. At $30.80 per share, NCL is worth around $6.3 billion on the market. The market values NCL at as high as nearly 15.8 times EV/EBITDA.
Income investors might like Carnival the most as it pays the juiciest dividend yield at 3%. While Royal Caribbean offers investors dividend with a much lower yield at 1.3%, NCL has not paid any dividends yet.
My Foolish take
With a decent dividend yield, consistent cash flow generating ability and a reasonable valuation, Carnival Corporation (NYSE:CCL) seems to be a decent stock for investors at the current trading price. The significant recent insider buy in the company would give investors more confidence to accumulate Carnival Corporation (NYSE:CCL)’s shares now.
The article Insiders Are Cruising on Carnival originally appeared on Fool.com and is written by Anh Hoang.
Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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