Valuation and Investment Term Paper Example | Topics and Well Written Essays - 1000 words

Valuation and Investment - Term Paper Example More than 60 percent of the potential customers come from US alone. Carnival is a 23.78 billion company by market capitalization. It has 100 ships in its possession and runs 15 hotels comprising of 3420 guest rooms. The company also possesses 395 motor coaches. The company markets its vacation tours through travel agents and operators. The company gets competition from several smaller cruise liners but due to scale of operations the company is in better position to weather them. (Carnival Corporation 2011) Compared to Cruise Lines, Royal Caribbean (RCL) is a smaller company with market capitalization of only $5 billion; however, RCL claims to have the newest fleet in the industry that provides a lot more open space in their fleets. Operationally, they are smaller than Carnival Cruise but hope to pick them fast. Royal Caribbean manages 40 ships and handles traffic of almost 4 million passengers. The Celebrity Cruises segment is meant for premium customers. This segment comprises 9 shi ps and offers some of the premium services. (Royal Caribbean 2011) Financials It will be appropriate to go through the financials of both the company. The following table shows side by side some of the important key parameters. Some Key Financials Cruise Corporation (CCL) Royal Caribbean (RCL) Market Cap (intraday) 23.78bn 5.06bn Current Ratio (mrq) 0.23 0.40 Total Debt/Equity (mrq) 41.26 103.7 Operating Cash Flow (ttm) 3.82billion 1.42billion Qtrly Earnings Growth (yoy) -18.30% 74.0% Trailing P/E (ttm) 12.53 8.71 200-Day Moving Average 38.41 38.41 52-Week High 48.14 49.99 52-Week Low 29.36 23.03 Beta 1.53 3.19 Source: http://uk.finance.yahoo.com/q/ks?s=CCL http://uk.finance.yahoo.com/q/ks?s=RCL Liquidity The above table displays some of the important liquidity ratios for both the company. On liquidity ground the Cruise Corporation stands better than Royal Caribbean as debt-equity and current ratio both are higher in the case of Royal Caribbean; however, the reason for this lies in the recent addition of some of the luxury ships in its fleet increasing its long term debt. Obviously, this has also reflected in its earnings growth too. Earnings Growth As per the quarterly earnings growth, Royal has displayed an impressive 74 % year to year growth against the negative earnings shown by Cruise Corporation. This indicates that though Cruise has larger fleet to cater to the vacation needs, the segment to which it serves is price sensitive and the Cruise is unable to raise its effective rates due to recessionary conditions. The situation for the CCL may improve with the change in economic conditions as being envisaged after nine months and then higher vacation charges may improve the earnings. Nevertheless, robust growth of the economy is not envisaged in near future so the advantage of booming economy that CCL may have because of its larger fleet and capacity to handle larger traffic is several years away. Risk Perception by Market CCL commands higher P/E compared t o RCL as can be seen from the above table. Risk perception (Beta) by market for RCL is much higher than CCL as later commands smaller Beta of 1.53 against 3.19 of RCL. High Beta indicates high volatility in the market price of the stock. In case of some adverse market conditions or due to some other eventuality the price of RCL may see the vertical fall; however, that also indicates that substantial rise in stock price is possible with