Broker snap: Carnival to recover lost ground

7th Jan 2011 10:26

Nomura expects cruise operator Carnival to recover the pricing power lost during the recession caused by the booking curve, and raises its earnings estimates for 2011.The Japanese broker says that Carnival's results during 2010 have reflected this recovery, with net revenue yields at constant currency being up 2.5%, after a decline of around 10% in 2008/09."With the assistance of operational gearing we expect margins and return on invested capital to rise back towards historical levels," says analyst Nicholas Thomas. This should drive a strong medium-term earnings per share (EPS) growth (of around 20% every year), along with free cash flow generation.Nomura increases its EPS estimates for 2011 and 2012 by 4% and 8% respectively, and upgrades the 12-month target price from 3,300p to 3,870p, implying a further 23% upside for the stock. Carnival is given a 'buy' rating.