The Zacks Analyst Blog Highlights: Google, Microsoft, Carnival, Carnival plc and Royal Caribbean Cruises

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Jan 19, 2012, 09:30 ET

CHICAGO, Jan. 19, 2012 /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 Google Inc (Nasdaq: GOOG), Microsoft Corp (Nasdaq: MSFT), Carnival Corporation (NYSE: CCL), Carnival plc. (NYSE: CUK) and Royal Caribbean Cruises Ltd. (NYSE: RCL).

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Here are highlights from Thursday's Analyst Blog:

Earnings Preview: Google

We think that the company will easily beat top line estimates, but come in close to bottom line expectations.

Google Inc (Nasdaq: GOOG) is set to announce its fourth quarter earnings tomorrow after the bell. Judging from market trends such as search metrics and ecommerce growth, we think that the company will easily beat top-line estimates, but come in close to bottom line expectations.

Google saw much higher query volumes and rising click-through rates that we think will be slightly offset by lower CPCs. The company obviously gained from soaring ecommerce sales, both on account of the holiday season and as a result of the retail market, particularly for electronic goods continuing to shift to the online channel.

Rising query volumes are a big positive, an indication of the success of Google's growth strategy. In fact, preliminary search data indicates that the company actually gained share in the last quarter, although Microsoft Corp's (Nasdaq: MSFT) Bing grew faster off a smaller base (compared to the year-ago quarter).

The other thing of note is the rising click-through rate. Google has been criticized for the way it continues to change its search algorithms and the company has continued to defend itself saying that it has moved in the interests of users. The rising click-through rates suggest that Google is moving in the right direction.

However, the quarter will not be without challenges. Europe could weigh on results, since market conditions remain uncertain here. However, commenting on the situation now is a bit like a guessing game. The truth is, Google's fourth quarter performance versus estimates hinges to a significant extent on how it does in Europe.

We think that investors are also likely to consider Motorola Mobility's disappointing earnings announcement, since the company is set to acquire Motorola this year. Although Google will no doubt discuss Motorola on the call, investors could express disappointment if Google decides to pursue the business instead of just picking up the patents and discarding the rest. In any event, this is something that will be a pressure on share prices even if Google beats estimates.

Regulatory concerns also remain, although Google has the financial muscle necessary to deal with the situation.

Estimate Revisions Skewed Both Ways

Six analysts raised fourth quarter estimates in the last 30 days, while two moved in the opposite direction. For the following quarter, too, three analysts raised estimates, while three lowered. For fiscal years 2011 and 2012, five and four analysts raised estimates, respectively, while two and three, respectively moved in the opposite direction.

Magnitude of Revisions Not Significant

Given that 25 analysts currently track Google shares, it is therefore not surprising that the net impact on estimates was not significant. Overall, estimates for the next two quarters increased 3 cents and 2 cents, respectively in the last 30 days, respectively. They were also up 6 cents for fiscal 2012.

To Conclude

Google is on a great run, having breezed past third quarter estimates on the strength on broad-based revenue growth and strength in the mobile business (something that should continue in the fourth quarter). For further details please see Google Remains Search King.

It is apparent that its search quality improvements, and three-pronged focus on display, video and mobile are paying off. With Google+, the digital wallet, daily deals, ITA and other initiatives, it appears that the company has a finger in every online pie. It has also proved time and again that it can generate stellar results. Therefore, while the above-mentioned headwinds remain, we are optimistic about the company's fourth quarter results.

Sinking Cruise May Dent Carnival This Year

Carnival Corporation's (NYSE: CCL) cruise ship Costa Concordia, carrying more than 4,000 passengers recently ran aground at Italy's west coast, jeopardizing the lives of passengers onboard and the company's reputation. Carnival estimates the disaster, which reportedly caused 11 deaths and left more than 20 missing so far, to hurt full fiscal 2012 earnings by around $85–$95 million or 11–12 cents per share.

The company also apprehends several other costs that are not in at this time. Prior to this disaster, management had projected full fiscal 2012 non-GAAP earnings in the range of $2.55–$2.85 per share. Carnival has declared payment $40 million deductibles on insurance to cover the damage to the vessel and third-party personal injury cover. The vessel is expected to be out of service for the remainder of the current fiscal year if not longer.

As a single economic entity, Carnival Corporation & Carnival plc. (NYSE: CUK) (earlier P&O Princess Cruises) forms the largest cruise operator in the world. Costa Cruises Group, taking care of 15 cruise ships, is one of the main operating companies in the Carnival group, with executive control in Europe. The company is responsible for the operation of Costa Cruises in Italy, AIDA Cruises in Germany and Ibero Cruises in Spain.

More than a year ago, Carnival faced another calamity when a fire broke out in the engine room of the Carnival Splendor, off the coast of Mexico. The accident hurt fourth quarter 2010 earnings by about 7 cents a share. However, the disaster was much smaller in scale and did not put lives at risk.

Carnival Corporation & plc is traded on both the New York and London Stock Exchanges. On Monday, Carnival shares declined 16.5% to 1,878 pence in London trading. The company, however, did not trade that day in the U.S. stock exchange owing to a public holiday. On Tuesday, the company's shares fell 13.7% to $29.60 in the U.S. trading.

We believe the Concordia disaster is historical and will hit the industry as a whole in the near term. As we know, the cruise industry does maximum business in the wave season between January and March. The recent tragedy could shatter passengers' confidence and result in subdued bookings. The timing of the catastrophe is bound to take a toll on Carnival's busiest booking season this year.

However, we think that in due course of time, Carnival along with the entire industry will return to normalcy. Carnival, which competes with Royal Caribbean Cruises Ltd. (NYSE: RCL), currently retains a Zacks #5 Rank (short-term Strong Sell rating). We reiterate our long-term Neutral recommendation.

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