After enjoying a nice ride higher over the last 6 months or so, Carnival’s valuation of 16x 2015 EPS looks fair to Gaming, Lodging & Leisure Sector Head Todd Jordan.
Near-term risks include:
- Continued choppiness in Caribbean pricing for the industry.
- Increased macro risks including consumer spending pressure* and higher oil prices.
We remain constructive over the intermediate term as CCL yields should outperform Street expectations as the brand continues to regain lost value and brand rebuilding costs should abate.
*#ConsumerSlowing: The cyclical increase in consumer spending growth from the 2009 lows is under pressure. Rising food prices and a stagnating USD continue to squeeze average Americans on the margin. Given the potential for further USD depreciation and a continuation of global commodity inflation as a real macro risk, we think U.S. consumption growth will slow as it bumps up against difficult compares heading into 2Q and beyond.