Analysts at Credit Suisse bumped up their target price on cruise operator Carnival on Tuesday after “an encouraging update” with company management and a 'call' with its chief financial officer saw it “retain a positive view”.
Credit Suisse said its conversation with CFO James Heaney, who joined Carnival from SeaWorld back in 2015, focused on five key topics.
According to the Swiss broker, Heaney said Carnival now sees “solid yield growth” throughout 2019, with trends versus peers better judged alongside return on invested capital.
Carnival's yield management system, an extending booking curve and continued adoption of its offerings by millennials also supported the investment case.
Credit Suisse also said that when discussing flexibility in a downturn, Heaney had noted scope for cost and capex adjustments in the near-term.
And while he also played down potential savings as a result of the new fuel regulations that were set to come into effect in 2020, the broker itself said it saw Carnival as being “well placed to benefit”.
“We would expect caution to prevail and yield growth of around 1% seems likely (CSe 1.5%). The key downside risk stems for a combination of 6% industry capacity growth and a weaker consumer backdrop combining, although the 2019E PE of 12.8x seems to capture an element of that risk,” the analysts said.
“Whilst 2019E guidance on 20 December will likely be cautious, we see a 2018-21E EPS CAGR of 12% vs a Nov-19E PE of 12.8x as a compelling combination on a 12-month view.”
CS upped its target price on Carnival's shares to 5,910p from 5,770p, while keeping their recommendation at 'outperform'.