Brexit Impact Fears For Carnival May Be Premature

Buckingham Research Group termed that Brexit impact fears in respect of Carnival Corp CCL are premature after attending the earnings conference call of the company. The cruise firm delivered not only an earnings beat but also offered an upbeat outlook for the full year.

As a result, analysts Daniel McKenzie and Scott Park maintain their Buy rating while increasing the price objective from $53 to $55 on the company's shares. This implied about 18 percent upside potentials from Monday's closing price.

In a research note, the brokerage pointed out, "CCL's revenue levers include restrained growth; joint itinerary planning; redeployed capacity (European capacity in 2017 falls 5 percent YoY); and a new revenue rev mgmt. system covering 6 brands and 30 percent of CCL's 2017 capacity. FCF for CCL is accelerating and as such, is an accelerating return of capital story."

Related Link: Carnival Shares Sink After Early Rally

The lead analyst cited three key factors for reaching its investment conclusion:

1. Earnings growth for fiscal year 2017 is ahead of the brokerage's estimates.
2. Airline booking and pricing trends support the commentary for the year 2017.
3. Robust free cash flow to drive dividend growth, though modestly and share repurchase.

Buckingham Research cited the historical trading pattern of 12–18x forward earnings and justified that the revised price objective is based on 15x increased EPS estimates of 2017. "We believe our multiple balances macro/geopolitical risks with fundamental changes in the core business that are driving a multi-year improvement in earnings and FCF," the brokerage concluded.

At time of writing, the stock traded at $48.46, having gained $1.99, or 4.28 percent on the day.

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