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Carnival Corp (CCL) Q3 Earnings: Is a Beat in the Cards?

Zacks

Cruise and vacation company Carnival Corporation CCL is slated to release third-quarter fiscal 2016 results on Sep 26, before market opens. We expect the company to surpass expectations.

Last quarter, Carnival had posted a positive earnings surprise of 25.64%. In fact, the company’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 20.19%.

Why a Likely Positive Surprise?

Our proven model shows that Carnival is likely to beat on earnings because it has the perfect combination of the two key ingredients.

Zacks ESP: Earnings ESP for Carnival stands at +2.13% because the Most Accurate estimate is $1.92 while the Zacks Consensus Estimate is pegged at $1.88. This is a meaningful indicator of a likely positive earnings surprise.

Zacks Rank: Carnival currently has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of Carnival’s favorable Zacks Rank and positive Earnings ESP makes us reasonably confident of an earnings beat.

What is Driving the Better-than-Expected Earnings?

Along with the fiscal second-quarter report, the company had issued a guidance range of $1.83 to $1.87 for adjusted earnings per share in the fiscal third quarter. The company had factored in year-over-year revenue growth of 2–3% and a 6–7% increase in net cruise costs, in its earnings per share projection.

Carnival expects revenue yields to continue improving on the back of marketing initiatives and a better booking environment. Moreover, its brand-strengthening initiatives via documentaries, television programs and other digital initiatives, are likely to boost the revenue stream.

Moreover, Carnival’s strategy to grow beyond its familiar itineraries and capitalize on new markets bodes well. The company is also confident that its fiscal third-quarter results will reflect growth in the Asian and Australian markets.

Booking volumes have been substantial this fiscal year and the trend is expected to continue in the quarter to be reported. Sales to comparatively untapped markets like Cuba, Bermuda and Mexico are also expected to favor the company.

Carnival has been reducing fuel consumption over the past few quarters and the fiscal third quarter is likely to be no exception.

However, negative currency translation, macroeconomic issues like geopolitical uncertainties and the Chinese slowdown, as well as increased marketing expenses may hamper the quarter’s performance.

CARNIVAL CORP Price and EPS Surprise

Other Stocks to Consider

Carnival is not the only company looking up this earnings season. Here are some other companies to consider as our model shows they also have the right combination of elements to post an earnings beat this quarter:

Boyd Gaming Corporation BYD has an earnings ESP of +15.38% and a Zacks Rank #3.

Wynn Resorts Ltd. WYNN has an earnings ESP of +14.61% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

MGM Resorts International MGM has an earnings ESP of +10% and a Zacks Rank #3.

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