Expect Carnival's Outlook To Be Cautious; Investors Get Ready To Buy The Weakness

Stifel’s Steven M. Wieczynsk believes investors should position themselves defensively ahead of Carnival Corp CCL's earnings report, given expectations for an underwhelming initial EPS guidance for FY 2017.

Wieczynsk maintains a Buy rating on the company, with a price target of $60.

Cautious Outlook

The analyst also cautioned investors regarding “potential cautious China commentary,” coupled with “the strong post-election move” in the stock potentially triggering short-term profit taking around the earnings release.

At the same time, Wieczynsk believes the “2017 constant currency fundamentals are shaping up nicely for CCL, which, when combined with management’s steadfast commitment to returning excess capital to shareholders, leads us to recommend buying further into the name on any trading softness around the quarter.”

The analyst sees the stock as attractive, both on a relative and an absolute basis, given the belief that the company is well positioned to deliver out-sized total returns over the next two to three years.

Selloff Likely

“Looking beyond fuel and FX potential headwinds, we have also recently heard rumblings from our trade partner contacts and investors suggesting the pricing achieved across CCL’s growing China program has continued to soften, as recent supply additions to the market have further strained the existing sourcing infrastructure,” Wieczynsk stated.

The analyst also pointed out that investors usually tend to “overreact” to negative data points, especially regarding China, given the country’s long term significant for the industry.

“All told, we believe the potential for a weaker than expected FY17 guide, coupled with the strong post-election run in CCL shares, could trigger short-term profit selling when the company reports F4Q16 results,” Wieczynsk added.

At last check, shares of Carnival were down 2.22 percent at $52.15.