Carnival's Cruise Isn't Over

It's been clear sailing lately for the world's largest cruise operator--Carnival Cruise Lines (soon to be renamed Carnival Corp.). Credit the success to the rediscovery by American tourists of ocean-liner vacations. Carnival, catering to a middle-income market, has defied the odds in posting record earnings since 1990. The recession has far from slowed the rapidly growing Carnival. So its stock has been on a roll, rising from 37 a share last summer to 50 in December. With the stock now at 47, has Carnival finally surged to its peak?

"Not a chance," says a money manager who invests mainly in entertainment stocks. He believes Carnival is fast becoming a major entertainment company, with increasing stakes in riverboat gambling, hotels and casinos, and the tour-and-travel business. The stock, he figures, is worth 60. Analyst Ed Tavlin at Fahnestock agrees: "The consistently high level of passenger satisfaction has resulted in continuous and significant financial success for Carnival." Since going public in 1987, notes Tavlin, revenues have nearly tripled and earnings have advanced from $1.30 to $2.25 in 1993.

One factor that's sure to further boost the stock is management's plan to form a company that will operate Carnival's riverboat gambling and hotel-casino operations. Carnival intends to spin off to shareholders 45% of its 50% stake in this new company. The other 50% will be owned by privately held Continental Cos., a hotel-management outfit.

It may come as a surprise that Walt Disney might enter the cruise business. Carnival Vice-Chairman Howard Frank, who raised the possibility, told BUSINESS WEEK that Disney's entry would stimulate more business for the industry. Some pros speculate that rather than form its own company, Disney might opt to buy Carnival. Frank, who says Carnival and Disney have had no discussions, says: "We wouldn't be interested." Disney officials declined to comment.

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