Has the industry turned the corner in the economic depression? At Wachovia Capital Markets, Tim Conder, senior analyst, has upgraded Carnival Corporation to a $28 to $30 12-month price target on the improved pricing outlook provided in Carnival’s second quarter earnings call. Conder’s earnings per share estimate for 2009 is $2.05 compared to Carnival’s guidance from $2.00 to $2.10.
Barclays Capital’s analyst Felicia Hendrix has also moved Carnival up – from $17 to $26. Her move is based on the belief that cruise pricing has bottomed out. Hendrix’s earnings forecast for 2009 is upgraded to $2.05 from $1.85.
Hendrix also noted that Royal Caribbean Cruises should benefit from the same fundamentals as Carnival.
At the Susquehanna Financial Group, analyst Robert LaFleur’s earnings estimate for Carnival for the year is $2.09.
Conder’s earnings estimate for Royal Caribbean is $1.08 for 2009.
The market consensus is $2.07 for Carnival and $1.10 for Royal Caribbean.
Conder also raised his earnings estimate for Carnival for 2010 to $2.19 from $1.93, and $1.63 for Royal Caribbean. Conder attributed the upgrade to pricing recovering faster than expected and lower non-fuel costs.
LaFleur’s estimate for Carnival for 2010 is $2.29, and Hendrix’s, $2.05.
The market consensus for 2010 is $2.09 for Carnival and $1.23 for Royal Caribbean.
LaFleur wrote in current report that Carnival’s prospects for the remainder of the year and beyond are more positive than previously anticipated. He also said that cruise fundamentals appear to have bottomed out.
Conder said he feels the downside is relatively limited and noted that while discretionary income will continue to be squeezed, data from the Conference Board indicate that consumers’ plans to take vacations are only 34 percent correlated to consumer confidence.
According to Hendrix, with the supply growth, significant price increases are unlikely over the next two years, in addition to a fuel headwind that may provide a drag on earnings growth. Thus, she “believes Carnival is range bound for the near to medium term.”
Other risk factors are war and acts of terrorism; a sharp, prolonged downturn in the economy; upward spikes in fuel costs; and an unexpected decline in European economies given the industry increased exposure in Europe, according to Wachovia’s Conder.