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Carnival brand recovery could drive Q3 upside: UBS

Carnival brand recovery could drive Q3 upside: UBS
With overall stable industry fundamentals and retailers indicating a strong finish to third quarter cruise bookings in general, UBS thinks Carnival Cruise Line's recovery could drive upside for Carnival Corp. & plc's Q3.

The brokerage expects Carnival to post a $1.70 per share profit, compared to the Wall Street consensus of $1.63 and company guidance of $1.56 to $1.60, when the cruise operator reports results on Sept. 22.

In a note UBS said it believes Q3 close-in bookings were strong generally.

UBS analyst Robin Farley sees about a penny of positive impact from fuel, roughly offset by a penny of drag from foreign exchange. The brokerage's Q3 net yield forecast is an increase of 2.9% in constant currency (a 3.1% decrease on an as-reported basis), slightly above the consensus expectation of a 2.7% increase in constant currency (and a decrease of 3.2% as reported).

UBS calculates every point of yield translates to about 18 cents per share for the year.

Distribution channel checks indicated Q3 ended 'very strong, with high premiums on last-minute cruises right up through August,' while bookings for October and November have been slower, based on some reports. This suggests Q4 may not see the same kind of closer-in upside as Q3 but the outlook remains solid for the year with no risk to guidance, Farley said.

UBS projects Carnival's full year EPS as $2.69, above the Street's consensus of $2.53 and the company's guidance of $2.35 to $2.50.

Farley added 2016 continues to be strong, with booked volumes 'well ahead' of last year. Mediterranean cruises for 2016 are currently booking at a double-digit price increase. There are some concerns higher airfares will rein that in, she said, but there's a bit of cushion in what's already on the books for Europe.

UBS reiterated its 'buy' rating for Carnival and a 12-month price target of $57 based on a multiple of 14 to 16 times its EPS estimate of $3.43 for CCL in 2016.

Carnival shares opened at $52.57 Wednesday.