We expect a F3Q beat; we expect CCL will reiterate FY yield guidance; but we think CCL will reduce FY EPS guidance from $4.25-$4.35 previously to $4.18-$4.22 due to fuel/FX, Hurricane Dorian, and the Costa Smeralda delay (Ex. 3-5).
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In this week’s piece we discuss four topics: 1) a rotation from growth to value last week, and what that means for our coverage; 2) healthy U.S. GGR trends in August and thoughts on September; 3) timeshare stocks now seem back in favor, which we’ll discuss, including some LBO math on HGV that we think would seem to support a buyout; and 4) the hurricane forecast and measuring the likelihood of another storm as we’re now over halfway through the Atlantic hurricane season.
Oil prices seem likely to spike on Monday (9/16/19) following news of the strikes at Saudi oil fields over the weekend. Below we review exposure to rising fuel prices for each of our sub-sectors. The biggest impact is a negative impact to cruise lines.
The U.S. ISM manufacturing PMI has been in a downtrend for the last year, and this week it fell below the key 50 level for the first time since August 2016. In this week’s piece we examine the implications for our coverage by looking at industry stock returns over the last 25 years in relation to when PMI drops below 50 as well as when PMI eventually bottoms.
Hurricane Dorian has continued to impact several voyages and we are lowering our estimates. For now, it seems the financial impact and potential prolonged impact may not be as bad as it could have been, but that’s still to be fully seen as the situation remains fluid. Port Miami, Everglades, and Canaveral closed on Saturday, but Miami and Everglades just re-opened. This means that cruise lines have had to extend sailings, cancel sailings, and shorten sailings, which results in refunds/credits paid out to guests, as well as compensation for other travel arrangements. The lost revenue from the cancellations and itinerary changes has the biggest negative impact to C-3Q results. We are not expecting a prolonged impact to the industry as experienced during the 2017 hurricane season because 1) Puerto Rico was a key home port, unlike the Bahamas, 2) there are other alternate destinations, if any ports/islands experienced meaningful lasting damage, and the eye of the storm also missed the Nassau port, and 3) the 2017 season also faced a series of back-to-back storms, which we can only hope doesn’t happen again.
Current reports indicate Hurricane Dorian is strengthening and could make landfall in Florida as a Category 3 storm on Sunday.
We’ve taken a fresh look at our assumptions for each company now that 2Q earnings season has been digested. Some estimates come up, some come down, and some don’t move as we just changed some of the assumptions with various offsets. Each is detailed below.
NCLH reported 2Q earnings this morning (8/8/19) – see our initial take here. The report seemed OK, and the stock was flat going into the call, but then rallied on a bullish tone with positive data points. We’re surprised the stock closed up only 2% today in a strong tape.
This morning (8/8/19) NCLH reported 2Q EPS ex-items of $1.30 vs. the prior guide of ~$1.33, consensus of $1.26 and our $1.27 estimate. NCLH beat its constant currency net yield guide by 30bp despite one month’s impact from Cuba. The tone of the report was bullish, as NCLH is seeing better core trends excluding Cuba and the one-time maintenance issue, but 2019 EPS guidance was modestly below consensus.
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