Accelerating constant dollar net yields combined with controlled costs should drive approximately 25% annual earnings growth in 2015 and 2016, and approximately 8.1% return on invested capital in 2016, the brokerage said in a note before market open Tuesday.
Wells Fargo cited Caribbean pricing recovery, led by the Carnival Cruise Line brand, particularly in the second and third quarter as industry capacity shifts away, and the European's market's stability or improvement despite economic turmoil. Asia, meanwhile, is posting strong double-digit growth.
Wells Fargo analyst Tim Conder also noted Carnival's marketing campaigns and brand segmentation are gaining traction, while improving consumer confidence and newly focused on-board product offerings are driving constant-dollar on-board yield gains.
Net cruise costs excluding fuel in constant dollars are 'well controlled' in 2015 and should decline in 2016 as elevated levels of drydock expenses abate, Conder said.
Wells Fargo raised its 2015 earnings per share estimate for Carnival to $2.53 from $2.40 and for 2016 to $3.09 from $2.95. The valuation range goes to $52 to $54, from $48 to $50. This is based on a multiple of 16.8 to 17.5 times price/earnings and 11.5 to 11.8 times enterprise value/EBITDA to the 2016 estimates of $3.09 and $5.83, respectively.
CCL shares closed at $47.76, down 21 cents, on Monday.