Following three strong years of cruise industry performance, such skepticism is healthy, the brokerage said in a note.
'We feel a “normal” cyclical slowdown during 2019-2021 is reasonable,' Wells Fargo analyst Tim Conder said.
However, he cited a number of factors that would cushion downside in such a slowdown.
Primarily, the demand for 'experiential' travel is growing in North America, Europe and China. Other key factors include Cuba's further development and a likely gradual return of the historically high-margin Eastern Mediterranean itineraries. Alaska, the Eastern Mediterranean and Northern Europe provide the highest seasonal net yields, Conder noted.
Furthermore, Wells Fargo pointed to the ongoing data/customer relationship management-driven disciplined revenue maximization strategies (itinerary allocation/planning, focused marketing, etc.), along with cost management, as cushions.
'A key will be the degree to which No. 4 industry player MSC (No. 3 by 2021-2022) employs more disciplined data analytic demand techniques versus a history of aggressive pricing ... for its growing fleet of newbuilds,' Conder cautioned, recalling the 2013 Caribbean.
As for Carnival's first quarter, Wells Fargo expects strong close-in bookings to deliver earnings per share upside. The brokerage forecasts 45 cents EPS, 2 cents above the Wall Street consensus and compared to guidance of 37 cents to 41 cents.
Wells Fargo reiterated its 'outperform' (buy) rating for CCL and an $80 price target, based on 16.3 times price/earnings and 11.9 times enterprise valuation/EBITDA to the brokerage's 2019 estimates of $4.91 and $8.53, respectively.
CCL opened at $68.01 Wednesday.
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