Carnival Corporation Upgraded – Analyst Blog

We are upgrading our rating on Carnival Corporation (CCL), the largest cruise operator in the world, to Outperform from Neutral.

 

The rating upgrade is based on third quarter 2010 earnings, which were well ahead of the Zacks Consensus Estimate, primarily driven by better-than-expected net revenue yields, robust demand in the summer season and ongoing cost reduction initiatives, which more than offset the hike in fuel prices. Carnival also raised its fiscal year 2010 outlook.

 

We are also encouraged by the company’s strong booking and pricing trend and successful cost-containment efforts, resulting in an increased fiscal 2010 outlook.                                                                                                                 A strong balance sheet and solid cash generation will likely position Carnival well and promise above-average, long-term growth in an improving economy, marked with a slower industry capacity growth and reviving consumer demand. The company is also experiencing a decline in fuel prices and favorable exchange rate.

 

 

Carnival’s third quarter 2010 earnings of $1.62 per share surpassed the Zacks Consensus Estimate of $1.47 and the year-ago quarter’s $1.33. Earnings for the quarter also exceeded management’s guidance of $1.43 to $1.47 per share.

 

Total revenue spiked up 7% from the prior-year quarter to $4.43 billion, in line with the Zacks Consensus Estimate. Net revenue yields increased 2.5% from the prior-year quarter, largely attributable to a favorable foreign exchange rate. On a constant currency basis, net revenue yields rose 6.2% from the prior-year quarter versus management’s guidance of up 5% to 6%.

 

 

For the fourth quarter, Carnival expects net revenue yields to be up 2.5% to 3.5% (decline of 1%–2% on a constant dollar basis) and earnings are estimated to be in the range of 32 cents to 36 cents per share.

 

For full year 2010, Carnival raised its earnings guidance in the range of $2.48 to $2.52 from $2.25 to $2.35 range. Net revenue yields on a current dollar basis are expected to increase 1% and on a constant dollar basis are projected to be up 2.5% on constant dollar basis.

 

 

Based on strong third quarter results, the analysts raised their estimates. Additionally, pricing is expected to rise due to an improvement in consumer demand. Moreover, free cash flow of the company is expected to accelerate from 2011 due to a slowdown in capacity, generating a strong potential for dividend increase.

 

The Zacks Consensus Estimate in the last 7 days for the fourth quarter, fiscal 2010 and 2011 jumped to 36 cents per share, $2.50 per share and $2.93 per share compared with 35 cents, $2.35 and $2.74, respectively.