Nomura Securities on Cruise Lines: Post 4Q Outlook; Reducing Estimates

Nomura Securities on Cruise Lines: Post 4Q outlook; reducing estimates.

Analyst, Harry Curtis, said, "Royal Caribbean's (NYSE: RCL) commentary supports our view that pricing is starting to recover outside of Europe, and should be up ~1% across the industry (ex-Costa) in 2012. We expect Costa pricing to drop ~15%, but the rest of the industry should average 1% pricing gains. Due to the timing, 2Q and 3Q pricing should be most impacted, with minimal impact on the 4Q. Industry-wide bookings ex-Costa brands are down 13-17% since the shipwreck, which translates to pricing of about 1%. We expect Carnival's (NYSE: CCL) pricing to decline ~1% in the 2Q-4Q and for full-year pricing to fall ~1%. RCL’s pricing should increase ~100bps in the 2Q-4Q and 1% for 2012. Risk to yield from here should be on the upside. We held off reducing estimates until RCL reported 4Q to assess postwreck demand. What’s interesting is that higher fuel prices are reducing EPS estimates more than our lower yield estimates. With the focus now on 2013, we see no reason to change price targets of $36 for both CCL and RCL. At 11.9x and 8.8x our 2013E EPS estimates, CCL and RCL are both trading near ten-year valuation lows."

Carnival (NYSE: CCL) 2012E EPS from $2.36 to $2.06; 2013E from $3.06 to $2.62

Royal Caribbean (NYSE: RCL) 2012E EPS from $2.98 to $2.47; 2013E from $3.58 to $3.23

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