Berenberg Says To Buy The Dip In Carnival: 'The Guidance For 2018 Remains Strong'

The market is taking an unfairly bearish stance on Carnival Corp CCL, according to Berenberg. 

The Analyst 

Berenberg analyst Stuart Gordon upgraded Carnival Corp. from Hold to Buy rating and maintained a $70 price target.

The Thesis

Carnival shares sold off ahead of the cruise line's second-quarter report last week, but Gordon said strong consumer confidence continues to support the industry and that he does not see any evidence to supports the sell-off.  The company delivered record Q2 revenue and earnings.

With managed growth and a supportive economic environment, Carnival continues to drive earnings growth above the broader market, the analyst said. 

Carnival delivered earnings and sales beats in Q2, but it was weak fiscal 2018 and third-quarter guidance that sank shares; the company cited fuel prices and currency headwinds that would impact EPS by 19 cents and 6 cents, respectively. 

Investors should not be spooked by the guidance — but due to a softer outlook and the tone of the conference call, it appears to be the case, Gordon said. 

“What interests us is that, while we cannot argue with the modest change in language and that Caribbean prices have not yet recovered, the guidance for 2018 remains strong and early commentary on 2019 remains robust."

Carnival is facing a difficult comparison against 2017, which the analyst called the best year in over a decade. The company's performance stands up well to 2015 and 2016 comparisons, he said. 

“Clearly, it does also signal how important the rest of the year will be, but we would argue that as well as being well-placed to deliver current expectations, the current valuation is materially affected,” Gordon said.

Price Action

Carnival stock was down more than 2 percent at the time of publication Wednesday afternoon at $58.53. 

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Photo courtesy of Carnival.