A Pair Trade In Cruiselines: Carnival Upgraded, Norwegian Downgraded

Despite challenges in the cruiseline space, Carnival Corp CCL has maintained or raised its net revenue yield growth guidance through the year, while Norwegian Cruise Line Holdings Ltd NCLH has been dealing with structural limitations arising from its lack of global scale, Bernstein’s David Beckel said in a report.

Beckel upgraded the rating on Carnival from Market Perform to Outperform, while raising the price target from $52 to $63. He downgraded the rating on Norwegian from Outperform to Market perform, while reducing the price target from $45 to $43.

Importance Of Global Scale

“Relative to our views when we initiated coverage, we now place more importance on global scale as a competitive advantage. Scale allows Cruiselines to sell into multiple markets, reposition inventory more flexibly, and invest more adeptly in marketing initiatives and advanced revenue management systems, among other things,” Beckel explained.

Carnival

Carnival's results and forward trends exhibit a “remarkable stability,” despite the tough operating environment. Carnival has recently announced several strategic initiatives, which could boost yields and drive incremental demand going forward, the analyst mentioned.

“We expect Carnival's multiple to expand through the issuance of stronger-than-expected FY17 guidance, the reveal of its new customer-facing technology at CES, and by consistently delivering on expectations throughout FY17,” the Bernstein report stated.

Norwegian

Beckel further mentioned that while Norwegian is poised to benefit from any positive industry dynamics, the recent run up in its share price leaves the risk/reward profile more balanced.

At Last Check

• Carnival was up 0.09 percent at $51.81.
• Norwegian was down 1.79 percent at $39.53.