Our Gaming, Lodging & Leisure analyst team recently added Carnival Cruise Corporation (CCL) to the Hedgeye Best Ideas list as a short. Carnival is an American-British cruise company and the world's largest travel leisure company. It has a combined fleet of over 100 vessels across 10 cruise line brands.
The stock has outperformed and now resides close to a 52 week high. We view the valuation as full, to say the least, particularly in the face of a potentially disappointing 2017.
Industry veteran Todd Jordan will explain his team's bearish thesis in a slide deck presentation at 10am ET today.
KEY POINTS OF DISCUSSION
- GROWING RISKS IN CHINA – Our September trip to China revealed that the risks to pricing may be more severe than previously thought. That thesis is now bolstered by the latest installment of the China pricing survey which suggests even lower pricing for the winter season (Q4 2016-Q1 2017) for the market in general and CCL’s brands in China (Costa and Princess). We’ll take you through the numbers and why we think pricing and profitability could deteriorate further.
- WAVE 2017 COULD DISAPPOINT – While we’re not projecting negative Caribbean yields for 2017, we think Wave season faces some big hurdles not appreciated by the Street. A disappointing Wave would result in disappointing 2017 yield growth and EPS. Our slide deck and conference call will lay out the prospects for Wave and yield implications.
- EXPENSIVE VALUATION/2017 ESTIMATES TOO HIGH – CCL looks expensive to us, particularly with the risks we see and a suppressed growth rate and lower margins in China. The stock has done well recently and sell side sentiment is bullish. Management's forward looking commentary has helped but in the pre-Wave period and with short booking windows in China, there is limited visibility to the risks we see. We're solidly below on 2017 yield and EPS estimates.
- OTHER CONSIDERATIONS – We think the Street is missing a few other issues as well which we will address during the conference call
Attendance on this conference call is limited. Ping sales@hedgeye.com for more information.
