We expect Florida-based cruiser Carnival Corporation CCL to beat expectations when it reports fiscal first-quarter 2015 results on Mar 27, before the opening bell. Last quarter, the company posted a positive earnings surprise of 42.11% driven by better-than-expected top line and lower-than-anticipated cruise costs. 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 +11.11%. 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 Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings. Meanwhile, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Carnival’s Zacks Rank #3 and +11.11% ESP makes us confident of an earnings beat.
What is Driving the Better-than-Expected Earnings?
Carnival has delivered strong top-line numbers over the past few quarters and we expect the trend to continue in the to-be-reported quarter as well. Even though management expects first-quarter revenue yields to range from flat to up 1% compared with the last year, 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 promotions.
Moreover, Carnival's large-scale operations allow it to exploit global growth opportunities faster. The company’s expansion in the emerging markets of Asia – like China and Australia, which is gaining popularity as a tourist destination – is also encouraging. In our view, the Asia Pacific region is an attractive bet for Carnival because of the stable economy and growing affluent middle class.
However, we remain concerned about the company’s high expenses. Although the company is taking steps to lower operating costs and reduce fuel consumption, higher fuel cost is expected to be a drag on earnings in the to-be-reported quarter. This is primarily due to the regulation that ships operating within 200 nautical miles of the mainland U.S., Canada (except Aleutian Islands) and Hawaii will be required to use fuel containing no more than 0.1% sulfur. Additionally, costs related to Carnival’s plans to reduce pollution generated by its ships will add to the escalating expenses.
Stocks to Consider
Here are some 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:
Live Nation Entertainment, Inc. LYV, with an Earnings ESP of +4.17% and a Zacks Rank #1 (Strong Buy).
Cinemark Holdings Inc. CNK, with an Earnings ESP of +2.78% and a Zacks Rank #2 (Buy).
Regal Entertainment Group RGC, with an Earnings ESP of +25.00% and a Zacks Rank #3.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment