'CCL is demonstrating renewed solid execution including global deployment/sourcing diversification,' Wells Fargo analyst Tim Conder said, adding that the company has the lowest leverage in the cruise industry.
The brokerage cited multiple factors that should continue to drive 20%-plus earnings growth for Carnival in 2016 and 2017. These include controlled industry capacity growth of 4% to 5% annually and balanced global capacity allocation to developing regions, easing concerns about regions with economic/geopolitical challenges.
Investments in the on-board product, customer relationship management/marketing are driving higher ticket pricing and on-board spending. And Wells Fargo expects Carnival to benefit from further cost savings and fewer drydock expenses.
All these factors should provide a reasonable path to CCL's goal of $4 earnings per share in 2017 and reaching double-digit return on invested capital by 2018, Conder said. Wells Fargo estimates CCL's 2016 EPS as $3.39 and 2017 EPS as $4.06.
Carnival's valuation is at the lower end of a historical 10.2 to 15.2 multiple of enterprise value/EBITDA range based on the brokerage's 2017 estimate. Conder sees CCL's multiple expanding toward 13 to 14 as 2016 progresses.
Wells Fargo affirmed its 'outperform' (buy) rating for CCL.
