The brokerage thinks CCL will raise its dividend by a nickel, to 30 cents per share, in the second half.
Since Carnival's late March earnings report, Wells Fargo estimates favorable foreign exchange trends have contributed just over 4 cents per share and close-in second quarter bookings a penny per share, both marginally offset by fuel costs for the balance of 2015. For 2016, the brokerage estimates foreign exchange will add 7 cents per share and fuel—'given the pivoting/flattening of the forward Brent curve'—17 cents per share.
Overall, Wells Fargo said Caribbean pricing recovery, led by Carnival Cruise Line, remains 'on solid footing' given industry capacity shifts away from the region and brand-focused marketing. Europe is stable/improving, despite economic turmoil, and Asia is experiencing double-digit growth. Newly focused on-board product offerings are driving constant-dollar on-board yield gains, analyst Tim Conder added.
Areas to closely monitor include the Mediterranean region, in light of the relatively weaker southern Europe source markets and geopolitical uncertainty, and the Caribbean, given uncertainty about how competitor MSC Cruises' future capacity increase will impact pricing.
Conder said Carnival's returns on invested capital are likely to accelerate. Factors include a reduction in drydock expenses starting in mid-2016. In addition to the dividend increase, he thinks there's the potential for Carnival to begin modest share repurchases in 2016.
Wells Fargo raised its 2015 earnings per share estimate for CCL to $2.58 from $2.53 and its 2016 EPS estimate to $3.33 from $3.09. The valuation range of $52 to $52 was unchanged. The brokerage held its 'outperform' (buy) rating on the stock.
CCL shares closed at $47, down 20 cents, on Wednesday.