Carnival Corp. (CCL) and Royal Caribbean Cruises (RCL) present appealing valuations after unfortunate effects like influenza, storms and a shipwreck, and they have both seen double-digit growth in their stock price since then, CCL at 18% and Royal at about 40%, says Harry C. Curtis, Managing Director & Senior Analyst at Nomura Securities International, Inc.
Both CCL and RCL are “buy” rated for Curtis, and he says that he’s now “beginning to see some sequential improvement in pricing in Europe, which is a surprise given the economy. Some capacity is also moving out of Europe, so our sense is that pricing could be up low to midsingle digits next year. That would argue for additional upside, more so in Royal than in Carnival,” Curtis said.
There could also be a rebound if the European markets improve and the demand for cruises improves, which could result in strengthening of the pricing power for these cruise companies, Curtis said.
“Now, we have had, and still have, a preference for Royal, because it has more operating leverage than Carnival does and because it is going to be refinancing at least $1 billion, maybe upward of $2 billion, of its debt over the next couple of years. That should help their earnings growth,” he said.
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