Weaker European demand
The brokerage estimates a lower valuation multiple given a more muted earnings growth outlook due to further weakening in European sourcing and two years of flat earnings per share.
UBS now estimates 2020 EPS of $4.26, down from $4.80 previously, based on lowering its constant currency net yield forecast to up 50 basis points, down from up 1% previously. The brokerage’s valuation multiple goes to the lower end of 11 to 12, down from 13 to 14 previously.
‘While CCL is currently trading below historical valuation multiples, we see no clear catalyst for upside near-term given lack of earnings growth. Currently the stock is trading at around 10 times EPS versus three-, five- and 10-year average of 14 to 15 times, but EPS is likely to show no growth in 2019 or 2020,’ UBS analyst Robin Farley said. ‘While we believe CCL remains a well-managed company with strong brands and growth in the longer term, external forces have impacted and are likely to continue to impact CCL’s near term earnings outlook.’
Positive N. American yields still expected
Since Carnival sources more than half its business from North America, the UBS still expects yield growth there, and slightly less growth in the UK but still positive yields given their comparison to this year's close-in disruption.
‘We expect further declines in yield from Costa and, to a lesser extent, from AIDA,’ Farley said, along with continued yield growth in Asia and Australia/New Zealand.
CCL opened at $43.10 Friday.
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