Carnival cruising towards attractive value but Zika a concern, Numis says

Shares in Carnival continues to take on water on Wednesday after sinking almost 8% the day before due to investors reading across from the disappointing results of rival Royal Caribbean Cruises and fears around the Zika virus.

Royal Caribbean fell 15% and Norwegian Cruise Lines 8.6% on Tuesday after Royal Caribbean's guidance for 2016 arrived below expectations, with strong US dollar and higher interest rates cited as drags on earnings.

Analysts at Numis said the falls "look like a classic overreaction", though it retained its 'hold' rating on Carnival shares and noted Royal Caribbean's lack of effects from the Zika virus.

Despite failing to meet Wall Street estimates, Numis said Royal Caribbean's guidance suggested a 25% increase in earnings per share at the mid-point and the company was positive about the outlook, with net revenue yields expected to increase 2.0% to 4.0% on a constant currency basis.

This is in line with the guidance from Carnival which has guided to underlying net revenue yield growth of near 2% and EPS growth of 20%.

Royal Caribbean anticipated strong North American consumer and strong demand for Northern Europe and Asia will counterbalance pricing challenges in the Mediterranean, Australia and Brazil, with Carnival's Mediterranean offering being around 15% of capacity and the Antipodes 9%.

"At this stage, however, we maintain our 'hold' on Carnival for three key reasons," Numis said, "there is a danger that the Zika virus leads to a short-term hiatus in bookings especially given the importance of the Caribbean (circa 30% of CCL capacity); the sector is still vulnerable to customer concern about terrorist attacks, and; despite the bullish noises coming out of the cruise companies the outlook in China/Asia remains uncertain.

"We acknowledge, though, that the rating is now beginning to look attractive on current forecasts."