The Zacks Analyst Blog Highlights: Carnival Corporation, Royal Caribbean Cruises, JPMorgan Chase and Goldman Sachs Group

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Jun 23, 2011, 09:30 ET

CHICAGO, June 23, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Carnival Corporation (NYSE: CCL), Royal Caribbean Cruises Ltd. (NYSE: RCL), JPMorgan Chase & Co. (NYSE: JPM) and Goldman Sachs Group Inc. (NYSE: GS).

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Here are highlights from Wednesday's Analyst Blog:

Carnival Beats Q2 Estimates

Carnival Corporation (NYSE: CCL) reported second quarter 2011 earnings of 26 cents per share, surpassing the Zacks Consensus Estimate of 22 cents but deteriorating from 32 cents earned in the year-ago quarter.

While the earnings were aided by better-than-expected net revenue yields in North America brands, persistent hikes in fuel prices, geo-political turmoil and the disaster in Japan were the dampeners. Moreover, bookings were soft in U.K. and Southern Europe. However, earnings also exceeded management's guided range of 20 cents to 24 cents per share.

Carnival's second quarter total revenue increased 10.8% from the prior-year quarter to $3.6 billion, beating the Zacks Consensus Estimate of $3.5 billion. On a constant currency basis, net revenue yields rose 2.3% from the prior-year quarter and were in line with management's guidance range of 1.5% to 2.5%. Gross revenue yields rose 5.8% at current dollars.

Net cruise costs, excluding fuel per available lower berth day (ALBD), were up 2.7% year over year on a constant dollar basis. Fuel price of $673 per metric ton was up 35.0% year over year, reflecting an increase from management's guidance of $659 per metric ton.

Our Take

We believe that Carnival will be able to reap more profits in the ongoing third quarter. Historically, demand for cruises has been the greatest during the third fiscal quarter, which includes the Northern Hemisphere summer months. Higher demand during the third quarter leads to increased net revenue yield. Accordingly, the company typically generates the highest earnings at this time of the year.

In addition, substantially most of Holland America Princess Alaska Tours' revenue and net income is generated from May through September in accordance with the Alaska cruise season.

On the flip side, inflation in fuel prices remains a cause of concern for Carnival. Furthermore, route changes in almost 300 itineraries resulting from political disturbances in the Middle East and North Africa as well as lingering effects of the earthquake and tsunami in Japan will remain the depressing factor in Carnival's earnings growth. Because of these disruptions, there was a considerable drop in demand with consequent effects on booking volumes and pricing.

One of Carnival's primary competitors, Royal Caribbean Cruises Ltd. (NYSE: RCL), during its first quarter results, also cut down its fiscal 2011 earnings estimate to $3.10–$3.30 from the earlier projection of $3.25 to $3.45 due to the same geopolitical issues.

Carnival currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

JPMorgan-SEC Settle CDO Charges

JPMorgan Chase & Co.'s (NYSE: JPM) U.S. broker-dealer affiliate, J.P. Morgan Securities LLC, has agreed to pay $153.6 million to settle charges with the U.S. Securities and Exchange Commission (SEC). The SEC had alleged the bank of misleading investors in a synthetic collateralized debt obligation (CDO) known as Squared CDO 2007-1 that was tied to the U.S. housing market.

The investors suffered significant losses on their investments in this product when the housing market collapsed. As part of its settlement, JPMorgan also consented to improving its reviews and approval of its mortgage securities transactions.

The Settlement

JPMorgan neither admitted nor denied the allegations but consented on settling the case by paying a charge of $153.6 million. Of this total amount, $125.87 million will be returned to the mezzanine investors through a Fair Fund distribution, and $27.73 million will be paid to the U.S. Treasury.

According to a statement by JPMorgan, the company had suffered around $900 million in losses on the investment. The company also reviewed certain CDOs and voluntarily paid $56 million to the investors in a transaction known as Tahoma CDO I.

Our Take

The SEC has stepped up its investigation on Wall Street companies over the sale of CDOs that were responsible for significant losses to investors and the financial crisis. Last year, Goldman Sachs Group Inc. (NYSE: GS) settled a charge by paying $550 million for not disclosing to the buyers the role of a hedge fund firm in formulating the CDOs and taking a short position and betting on them to perform poorly in the open market.

While such charges will dent JPMorgan's reputation and its financials, we believe that they are a relief for investors who have lost their hard-earned money in such investments. Therefore, such steps from regulators are welcomed by investors.

Shares of JPMorgan currently retain the Zacks #3 Rank, which translates into a short-term 'Hold' rating.

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