Carnival Cruising Higher Before Result. Will It Continue?

Before the opening bell tomorrow, Carnival Corporation (CCL) will report its FQ2 ’15 result to the market. Carnival has provided guidance of an EPS figure of $0.13 and a revenue number of $3.724B. The stock’s performance has been impressive lately as strong demand in cruise/travel and lower fuel costs boost profits and market expectations. Carnival’s stock has risen substantially this year with a capital return of 10.52% year-to-date (YTD) relative to the S&P 500 which has produced 3.42%.

Estimize and Wall Street are optimistic leading into the result with Estimize predicting an EPS figure of $0.17 and Wall Street predicting $0.15. Estimize and Wall Street are forecasting a revenue figure of $3.594B and $3.534B, respectively, which is below company guidance of $3.724B. Carnival has a history of outperforming both guidance and consensus.        

 

Carnival is currently trading on a PE Ratio (TTM) of 30X which is above its five year average of 20.54X. The company has a number of fundamental positives working in its favor at present. The ongoing global economic recovery is helping drive growth in cruise line and travel demand, depressed oil prices are helping to reduce Carnival’s expenses and yield per customer increases have all contributed to Carnival beating the Wall Street EPS consensus for the last seven consecutive quarters. Investors will want assurance that the recent uplift in margins can be maintained if oil prices gradually rise over time. Carnival’s CEO Arnold Donald previously made mention that the lower fuel costs were not the main contributor to increased earnings despite fuel costs representing 14.6% of sales in 2014.

Carnival’s stock is currently trading up circa 2.04% this afternoon. A positive rerating from Deutsche Bank this morning has helped drive the stock higher leading up to its result. Deutsche Bank altered their recommendation on CCL from a Hold to a Buy and upgraded their price target to $55.30 from $51.00.

Overall, tomorrows report from Carnival is expected to be positive as Estimize and Wall Street are predicting the company to outperform guidance. Attention will also be paid to management’s comments on growth markets such as China and their expectations for growth rates moving forward.