We expect Carnival Corporation CCL to beat expectations when it reports fourth-quarter fiscal 2015 results on Dec 18, before the opening bell.
Last quarter, the company posted a positive earnings surprise of 7.36%, aided mainly by better-than-expected revenues and higher-than-expected revenue yields, bringing the trailing four-quarter average to a positive 56.99%.
Let us see what is in store for the company this quarter.
Why a Likely Positive Surprise?
Our proven model shows that Carnival is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +12.20%. This is a very meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Carnival has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings. Meanwhile, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.
The combination of Carnival’s Zacks Rank #3 and +12.20% ESP makes us confident of an earnings beat.
What is Driving the Better-than-Expected Earnings?
We expect Carnival’s trend of posting strong earnings results over the past few quarters to continue in the fourth quarter as well. In fact, management expects revenue yields to increase 3% year over year mainly on the back of strong bookings in the Caribbean and Alaskan regions. Also, revenues are expected to improve in the following quarters driven by better booking environment, higher ticket pricing and the brand-building efforts and other marketing initiatives.
Moreover, the Florida-based cruiser’s large-scale operations allow it to exploit global growth opportunities. The company’s expansion in the emerging Asia-Pacific markets like Australia, which are gaining popularity as a tourist destination, is also encouraging. In our view, this region is an attractive bet for Carnival because of the growing affluent middle class.
However, we are concerned about the company’s high expenses which might hurt earnings in the to-be-reported quarter. The company is striving to enhance sustainability, improve environmental friendliness, and meet air emission standards through the development of scrubber technology and exhaust-gas cleaning scrubber installations. This would, in turn, continue to increase expenses. Further, negative currency translation due to a strong dollar is likely to dampen fourth-quarter results.
Other Stocks to Consider
Here are some other companies in the leisure and recreational services that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Norwegian Cruise Line Holdings Ltd. NCLH, with an Earnings ESP of +2.00% and a Zacks Rank #3.
Royal Caribbean Cruises Ltd. RCL, with an Earnings ESP of +2.17% and a Zacks Rank #2.
MCBC Holdings Inc. MCFT, with an Earnings ESP of +18.52% and a Zacks Rank #3.
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