After the 2012 Costa Concordia incident impacted industry-wide bookings, Costa's 2013 yield recovery was below expectations. However, the fourth quarter marked the first quarter that the Costa brand posted double-digit recovery.
'We believe 2014 will be a year of reinvestment for the Carnival brand after the Triumph incident and view Costa's recovery as a positive read through for Carnival brand recovery. With supply expected to remain below historical average growth in North America and Europe, we believe the industry overall is seeing improving yield fundamentals,' UBS analyst Robin Farley said in a note.
Farley expects Carnival's outlook to be 'upbeat' heading into Q3, driven by high-season itineraries like Europe and Alaska.
UBS thinks the cruise giant will reiterate its full-year yield guidance, and estimates flattish 2014 constant currency net yields compared to the Wall Street consensus of a 0.3% yield decline and the company's guidance of yields down slightly year over year.
The brokerage projects Carnival's full-year earnings per share at $1.79, 8 cents higher than the consensus estimate, and above the company's guidance of $1.50 to $1.70. 2013 EPS was $1.58.
Farley said that since Carnival's March 24 guidance, fuel and foreign exchange changes combined would likely not be headwinds, despite an approximate 6% to 7% run in West Texas Intermediate oil, because bunker pricing has declined 1% to 2% since then. UBS thinks net cruise costs excluding fuel in constant currency will be up 0.4%, lower than the consensus forecast of up 1.4% and compared to guidance of slightly higher costs year over year.
With Carnival yields still 10 points below the peak 2008 level, UBS sees this as the driver for 2015, with more upside than downside to the brokerage's forecast of a 3.5% net yield increase next year.
On Tuesday UBS expects Carnival will report EPS of 2 cents, in line with the consensus estimate and compared to the company's range of a 2-cent loss to a 2-cent profit per share. Q2 2013 EPS was 9 cents.
UBS rates CCL 'buy' with a price target of $40 based on a 14 to 16 multiple of the brokerage's estimated 2015 EPS of $2.44, higher than the the $2.36 consensus.
On Friday Carnival shares closed at $39.11, up 30 cents.