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Wm. Blair sees in-line Carnival Q1 but trims 2015 yield outlook on Caribbean uncertainty

Wm. Blair sees in-line Carnival Q1 but trims 2015 yield outlook on Caribbean uncertainty
William Blair & Co. expects Carnival's first quarter earnings to meet the brokerage's 10-cent per share estimate, a penny above consensus and at the higher end of the company's guidance of 7 cents to 11 cents.

William Blair analyst Sharon Zackfia projects constant-currency net yield at the upper end of guidance of flat to up 1%, a deceleration from Q4's 2.8% due to continued pricing softness in the Caribbean coupled with high capacity in the region during the quarter. She expects net cruise costs excluding fuel to climb about 5.5% to 6% in constant currency, versus guidance of 5.5% to 6.5%, reflecting higher drydock costs, advertising including a Super Bowl commercial and product enhancements.

In a note Zackfia told investors Carnival's pricing cadence has remained relatively steady, with particular strength in Alaska and Europe sailings offsetting Caribbean pricing 'that has not rebounded as quickly as we had hoped.' Due to the Caribbean uncertainty, William Blair reduced its full-year constant-currency net yield projection by 30 basis points, to 1.7%, under the guidance of roughly 2%.

Zackfia still thinks Carnival's full-year EPS guidance will hold at $2.30 to $2.60, compared to her estimate of $2.46 and the $2.54 consensus, since the euro and pound's continued depreciation against the dollar are more than offset by lower oil prices. The analyst expects this will add 3 cents to 4 cents per share to the December guidance.

For Q2, William Blair projects net yields slightly better than the first quarter and EPS of 20 cents, below the 27-cent consensus. Excluding fuel, the brokerage projects a 2.5% to 3% increase in constant-currency net cruise costs.

Zackfia noted Carnival’s stock has been 'flattish' so far in 2015 and currently trades at 18 times William Blair's calendar 2015 estimate, above its typical mid-teens P/E valuation. 'At the current valuation, we believe a healthy recovery is already priced into shares, and we remain concerned that such a recovery may be slower than most investors suspect,' she said.

William Blair reiterated its 'market perform' (hold) rating for Carnival.

Shares closed at $45.29, up $1.45 or 3.3% on Thursday.