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Wm. Blair lifts RCL, CCL estimates on lower fuel costs, weaker dollar

Wm. Blair lifts RCL, CCL estimates on lower fuel costs, weaker dollar
Citing recent declines in bunker prices and a somewhat weaker dollar, William Blair & Co. raised its earnings estimates for both Carnival and Royal Caribbean.

For Carnival the fuel price has gone down more than 10% since the company reported earnings on June 23 while the dollar has weakened about 4% versus the euro, William Blair analyst Sharon Zackfia said in a note. Carnival has collars in place for roughly half of its fuel exposure in 2015 and 2016, she added.

So the brokerage is raising its 2015 estimate for CCL by a nickel, to $2.54, up 30% from 2014 and above guidance of $2.35 to $2.50 as well as consensus of $2.53. The 2016 estimate goes up 15 cents, to $3.51, a 38% increase over 2015 and above the $3.23 consensus.

For Royal Caribbean the fuel price has fallen nearly 5% since the company's July 31 earnings report, while the euro has risen about 5%, Zackfia said. The company has hedged roughly half of its fuel for this year and 65% for 2016.

William Blair edged up its 2015 estimate for RCL by two cents, to $4.75, up 40% from last year and versus guidance of $4.65 to $4.75 and a nickel above the $4.70 consensus. The 2016 estimate goes up 5 cents, to $6.03, a 27% increase over this year and close to the $6.04 consensus.

The brokerage noted both stocks trade at about 14 times its new 2016 estimates.

'Although we are encouraged by the improvement in trends at Carnival this year, we continue to prefer Royal Caribbean given underlying drivers and articulated financial targets that seem likely to yield healthy 20%-plus EPS growth over the next few years with steadily improving ROIC,' Zackfia told investors.

William Blair rates RCL 'outperform' (buy) and CCL 'market perform' (hold).