Wm. Blair cautious on Q1 Europe trends following Paris attacks

In a note William Blair told investors it expects Carnival to meet the brokerage's 48-cent earnings per share estimate in Q4, above the 41-cent consensus and the company's implied guidance of 36 cents to 40 cents per share. That compares to 27 cents in Q4 2014.

Zackfia projects constant-dollar net yields modestly higher than the guidance of up 0.5% to 1.5%. She sees a 1.8% increase.

'Yields are likely to be driven by continued healthy results for North American brands, particularly Carnival, partly offset by headwinds tied to continued geopolitical turmoil in the Mediterranean and macroeconomic uncertainty in Europe,' Zackfia said.

She added constant-currency net yields will likely be somewhat higher than constant-dollar net yields due to the unfavorable transaction impact of currency. Constant-dollar results exclude the translation impact of currency exchange rates, and constant-currency results exclude both the translation and transaction impacts of exchange rates.

The brokerage believes some Q1 volatility occurred following the Paris attacks, with some softening trends for both the Mediterranean, especially Costa, and the Caribbean. This is against a backdrop of traditionally slower December bookings.

Zackfia projects Carnival management's outlook for 2016 to be mostly consistent with commentary on the Q3 conference call in September that indicated positive constant-currency yields driven by North American brands and better pricing on close-in bookings stemming from Carnival's initiative to lengthen the booking curve to curb last-minute discounting.

So the analyst expects guidance that includes William Blair's constant-dollar net yield assumption of 2.5%, but Zackfia said Wall Street may be looking for a more robust yield projection.

She thinks fiscal 2016 EPS guidance will encompass her estimate of $3.20, up 19%. Zackfia projects modestly higher net cruise costs, excluding fuel, due to fewer drydock days and additional investment in yield improvement tools and the development of new markets. Depreciation and amortization are likely to shave about 20 cents from EPS compared to this year, in her view, while the net benefit from fuel and currency may not quite meet Carnival's guidance of 10 cents per share because the US dollar has strengthened a bit compared to the euro.

For Q1 William Blair forecasts EPS of 25 cents, a nickel lower than the consensus.

Zackfia sees value in Carnival shares for investors over the longer term on improving trends in the business. But, with shares at a multiple of about 15 times the brokerage's 2016 EPS estimate, she views the current valuation as 'a bit rich' relative to the stock's historical price-earnings ratio averaging in the low teens.

'Moreover, we are incrementally more concerned on European trends following the attacks in Paris and particularly so for Carnival given its nationalistic brands such as Costa, AIDA and P&O,' Zackfia said.

The brokerage reiterated its 'market perform' (hold) rating.

CCL opened at $51.01 on Monday.