Goldman Cuts Carnival’s Outlook After Triumph Stranding

REUTERSA bad scene

This is certainly not what one expects when signing up for a holiday cruise.

Toby Barlow told CNN that his wife, Ann, a passenger on the ship, texted that the plumbing failed and people were defecating in bags and urinating in showers.

She also told him there’s “sewage running down the walls and floors,” he said.

“Elderly and handicap(ped people) are struggling,” she texted, according to CNN. “The smells are gross.”

But that’s apparently the reality aboard Carnival Triumph, which is proving to be anything but for Carnival Corp (CCL). The ship has been without much of its power since a fire broke out on Sunday and passenger conditions have (according to reports) rapidly deteriorated. Tug boats arrived today to tow the stranded ship to land.

Carnival’s stock is down 0.75% today on twice its usual trading volume after falling 4% yesterday. But while Wall Street sees a hit to earnings, no one’s (ahem) jumping ship.

Analysts at Goldman Sachs today kept their Neutral rating on the stock, but cut their full-year profit estimates for Carnival to $2.24 a share from $2.32:

The underlying drivers of our reduction are broken down into two buckets. First, the elimination of the Carnival Triumph ship (2750 berths) in our 2Q2013 fleet count. This reduction was a $0.03 impact. Second, a $40mn non-deductible expense associated with the repair of the damaged vessel. This higher expense is worth the remaining $0.05 of our $0.08 total reduction.

That may not be all, however:

We fully acknowledge that both of these line items could come in either above or below our expectations due to currently unquantifiable impacts. For now we have not adjusted net yield growth for 2013, which could be impacted by the negative publicity associated with this news during the important wave season. We await further data from our channel checks.

Tim Conder, analyst at Wells Fargo Securities estimates that the Carnival Triumph’s woes will have a 5-to-10 cents a share impact for this quarter, a sum that includes repairs, reimbursements and lost revenues.

While this incident represents a string of similar occurrences over the last several years, we believe this incident will most likely be more of a negative PR event, especially during the Wave season. Our $0.05-$0.10/share Q1 ’13 estimate impact will likely be looked through by investors given historical precedent. We believe that management will place additional efforts to better identify and install preventive measures to avoid future similar incidents and related negative PR. Bottom Line: We would use weakness to continue building positions.

Conder rates the stock Overweight and, as mentioned above, thinks the latest drama could be a reason to buy.

It’s hard to believe when one’s hearing tales of fights over food and sewage in the hallways, but the analyst reaction seems to be pretty mild. Then again, if this wasn’t enough to put people off from taking cruises, maybe nothing is.

For those interested in trying to make some money from the Carnival Triumph mishap, my colleague Steve Sears has a great column up today:

Investors who think the recent weakness in Carnival’s stock will accelerate can buy Carnival’s March $37 puts, which recently traded at $1.20. The puts are priced as if the stock will move about 1.6% each day until expiration. If the stock sinks to $33, the puts would be worth $3. The trade is a reasonable wager that Carnival’s stock will come under more pressure when the damaged ship reaches shore and passengers share their stories, which will likely lead to lawsuits. More bad publicity and potential litigation risk should pressure the stock.