Wells Fargo: Q2 likely the trough of Concordia impact

The brokerage found ‘aggressive’ pricing on the North American market to fill Europe sailings impacted by the weakness in demand from Southern Europeans.

In a note to investors, Wells Fargo predicted the worst impact from Costa Concordia is likely to be in the second quarter, citing North American-sourced pricing data.

Concordia is most likely to hurt European-sourced business, Southern Europe particularly, during Q2, analyst Tim Conder said. He added that Royal Caribbean’s business continues to recover faster than Carnival’s, and—all else equal—the first quarter will likely register the lowest pricing for CCL and RCL shares in 2012.

Collectively through the third quarter, Wells Fargo found pricing for long Caribbean cruises to be at the strongest level, while Europe pricing is the weakest for the four brands in the brokerage’s pricing survey, Carnival Cruise Lines, Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises.

Citing higher fuel costs, direct Costa Concordia costs, Costa Allegra costs and net yield adjustments, Wells Fargo cut its earnings per share estimates for Carnival. The 2012 estimate goes to $1.91 from $2.68, and the 2013 estimate to $2.74 from $3.23.

The brokerage also reduced EPS expectations for Royal to $2.23 from $2.83 in 2012 and to $3.02 from $3.11 in 2013.

Carnival’s share valuation range went to $35 to $37, down from $41 to $43, while Royal’s is unchanged at $35 to $37. Wells Fargo rates both stocks ‘outperform’ with a current preference for RCL.

CCL opened at $30.61 and RCL at $27.59 on Thursday. Carnival is scheduled to report first quarter earnings on Friday.

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