Wells Fargo lifts Carnival EPS outlook on lower fuel cost, higher yields

The brokerage said it appears Carnival Corp. and competitors continue to build a solid base of business for the first half of 2016 as they communicate to consumers that the best prices are available earlier in the booking cycle.

According to Wells Fargo, Q3 close-in pricing for Caribbean sailings weakened, while close-in pricing for non-Caribbean itineraries strengthened. Q4 Caribbean pricing, meanwhile, has held steady apart from a dip during the late August/early September stock market volatility, while non-Caribbean pricing has been modestly higher. For Q1 2016 sailings, Caribbean pricing has remained steady with a dip during the market volatility, and non-Caribbean pricing has remained steady.

Wells Fargo raised its earnings per share estimates for CCL to reflect lower fuel expense and slightly higher constant currency net yields. The 2015 estimate goes to $2.61 from $2.56, compared to guidance of $2.35 to $2.50. The brokerage's Q3 estimate is 2 cents higher than the consensus expectation while its full year forecast is 8 cents higher.

Wells Fargo's 2016 estimate goes to $3.43 from $3.16, 16 cents above the consensus. The valuation range for Carnival goes to $62 to $65, up from $52 to $54, on the higher 2016 earnings forecast at a price to earnings multiple of 18.1 to 19.

The brokerage rates CCL 'outperform' (buy). Shares remain attractive ahead of Carnival reporting Q3 results on Tuesday, Wells Fargo analyst Tim Conder told investors. He added that the stock's seasonality is likely favorable September through January, citing historical cumulative median returns 680 basis points above the Standard & Poor's 500 Index.

CCL shares closed at $52.07, off 67 cents, on Friday.