Carnival's Modest Surprise

We maintain our Hold rating for Carnival Corporation (CCL) and Carnival Plc (CUK) following the release of Q3 financial results. We expect Carnival to continue to trade at a premium to its largest competitor over the near-term. As a single economic entity, Carnival Corporation & Carnival Plc is the largest cruise operator in the world.

However, given our expectation for continuing margin pressures, especially related to significantly higher fuel expenses, we do not feel that material price appreciation is warranted at this time. While the recent pullback in the price of fuel should provide some relief, we note that costs remain significantly higher on a year-over-year basis.

Carnival has historically traded at a premium to Royal Caribbean (RCL), based on forward price-to-earnings multiples. This relationship still holds, based on current prices and our forward twelve-month EPS estimates for both companies. While Carnival Corporation is trading at 14.0x estimated 2008 earnings, Royal Caribbean is currently trading at 9.8x estimated 2008 EPS. We expect Carnival to continue to trade at a premium over the near-term. Our six-month target price of $42.00 is based on a multiple of 15x expected 2008 earnings.

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Read the full analyst report on CCL

Read the full analyst report on CUK

Read the full analyst report on RCL