Carnival Cruise Lines Could Be A Better Play On Oil Than Its Peers

In the past week, crude oil prices have been soaring on the news of the first OPEC production cut since 2008. The United States Oil Fund LP (ETF) USO is up nearly 10 percent in the past week, and oil stocks have followed suit.

However, rising oil prices also impact a number of other businesses as well.

Macquarie analyst Matthew Brooks believes Carnival Corp CCL’s stock is more closely-tied to cheap oil prices than other cruise stocks are.

“On our estimates, we think the majority (98%) of CCL’s 2015 EBITDA growth was driven by cheap oil, which highlights why oil is important,” Brooks explains. Now that oil prices may be headed back above $50/bbl for good, he predicts Carnival could see some selling pressure.

Related Link: OPEC Deal Indicates Saudi Arabia Is Abandoning Market Share Strategy

Brooks believes the cruise line stocks are in the middle of a downgrade cycle, but he sees Carnival as the safest play of the group. He points to the company’s solid positioning and strong partnerships in China as positive, but notes that China has a history of making life difficult for foreign companies in support of local competition.

Macquarie initiated coverage of Royal Caribbean Cruises Ltd RCL at Outperform with an $88 price target.

The firm also initiated coverage of Carnival at Neutral with a $55 target and Norwegian Cruise Line Holdings Ltd NCLH at Neutral with a $42 price target.