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UBS: Carnival a ‘compelling value’  at current EV/berth

UBS: Carnival a ‘compelling value’ at current EV/berth

Following the Costa Concordia disaster, Carnival shares are at an enterprise value per berth valuation seen only once in 15 years of quarterly EV/berth averages, UBS Investment Research said in new research.

(The brokerage noted the price in some individual trading sessions may have dropped below current EV/berth levels during that time.)

On Tuesday, in the first New York trading session after the Costa Concordia capsized Friday night, Carnival shares fell 14% and Royal Caribbean shares nearly 6%. Though both stocks edged up again the following day, the implied EV/berth valuations are ‘markedly below the five- and 10-year trailing quarterly averages for each name,’ said UBS analyst Robin Farley.

UBS said Carnival is now trading at $169,000 per berth, 9% above the all-time quarterly average low of $155,000 per berth in first quarter 2009 and 40% below the fourth quarter 2001 EV/berth average. The latter was the first quarter to see the full effect of 9/11.

The brokerage put Royal Caribbean’s current EV/berth valuation at 41% above the all-time quarterly average low of $111,000/berth, also set in Q1 2009, and 4% below the Q4 2001 average.

UBS said Carnival’s EV/berth valuation is trading at a 24% discount to its five-year quarterly average and at a 39% discount to its 10-year average, while Royal Caribbean is at an 8% discount and 19% discount, respectively.

At current stock price levels, RCL is trading at a 7% discount to CCL based on EV/berth, compared to an average discount of 24% over five years and 31% over 10 years.

The fact Carnival trades at a higher EV/berth level than Royal Caribbean in Farley’s view is warranted by its higher returns and greater level of operating income per berth, ‘which shows that a berth is worth more in the hands of a management that has historically outperformed,.’

UBS maintained its ‘buy’ rating on Carnival and a $35 price target, and its ‘neutral’ rating on Royal Caribbean and a $30 price target.

On Thursday CCL opened at $31.14 and RCL at $28.02.

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