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Wm. Blair: CCL's Q2 buoyed on Alaska pricing, Caribbean gains

Wm. Blair: CCL's Q2 buoyed on Alaska pricing, Caribbean gains
William Blair & Co. expects Carnival Corp. to meet the brokerage's second quarter earnings per share estimate of 37 cents, close to the consensus expectation of 38 cents and at the higher end of the company's guidance of 34 cents to 38 cents. In Q2 last year, EPS was 25 cents.

Analyst Sharon Zackfia forecasts a negligible net impact from currency and fuel versus guidance, as the benefit from currency has been offset by higher bunker fuel costs.

The brokerage projects a constant-currency net yield increase of 2.5%, compared to guidance of 1.5% to 2.5% and in line with the consensus, reflecting continued strength in North American itineraries, particularly the Caribbean and Alaska, and healthy pricing trends for EAA sailings in Europe.

William Blair sees lower pricing for Carnival's North American brands' Europe itineraries—roughly 5% of capacity for the year—due to geopolitical issues, and softer pricing in Australia and Asia—17% of annual capacity—given the significant capacity increases in those regions.

'Pricing trends appear to remain solid, with improved forward pricing trends for the bulk of itineraries as the quarter progressed,' Zackfia said in a note. According to the brokerage's price checks, Alaska appears 'exceptionally strong,' while the Caribbean 'remains healthy, with double-digit price improvement,' and EAA trends for Europe also appear to have strengthened over the past few months.

The brokerage expects Carnival to reiterate or narrow its full-year EPS guidance of $3.20 to $3.40 toward the upper end, versus the consensus estimate of $3.38, a 25% increase over 2015. Zackfia thinks Carnival will maintain guidance for an approximate 3% increase in constant-currency net yields and about a 2% increase in constant-currency net cruise costs excluding fuel, with costs higher in the third quarter due to Queen Mary 2's drydock and higher advertising expenses before those decline in Q4.

Carnival's stock price is down about 13% this year and is trading at 14 times William Blair's calendar 2016 EPS estimate, in line with its typical mid-teens valuation. Zackfia said that while the brokerage sees Carnival's business as well-positioned over the longer term, she favors Royal Caribbean stock, which is trading at a discount to its typical valuation—12 times William Blair's 2016 estimate versus a typical mid-teens valuation—ane growing earnings faster than Carnival.

William Blair rates CCL 'market perform.' On Monday shares closed at $46.64, down 51 cents.