AGE: ‘Mixed signals’ on wave season

Ally · 03-22-2006, 08:52 AM

22nd March 2006

Quote:

Wave season is giving off ‘very mixed signals resulting in investors questioning the true degree of underlying demand strength,’ according to new research by A. G. Edwards. Bookings have been steady ‘but not as robust when compared to the extremely strong ’05 wave,’ said AGE analyst Tim Conder.

Pricing in Europe and Alaska shows solid year-over-year growth but remains ‘flattish to down’ on second- and third-quarter Caribbean sailings, according to AGE’s mid-March booking and pricing survey. The survey also found sequential pricing has not progressed at the rate anticipated considering capacity growth is lower than recent demand growth trends and a greater percentage of available capacity is booked year-over-year, Conder said.

Several factors could partially account for the ‘lack of a traditional wave period demand spike,’ according to AGE. Among them: strong advance bookings in late 2005 ahead of the traditional wave period and a greater percentage of direct bookings – likely 15% of ’06 bookings for CCL and RCL. ‘This obviously would not be reflected in wave season booking volumes by travel agents, but should show up in pricing,’ Conder noted.

AGE fine-tuned its 2006 and ’07 earnings per share estimates for CCL from $3.12 and $3.64 to $3.10 (the high end of management’s guidance) and $3.58, respectively. For RCL, the 2006 and ’07 estimates go from $3.08 and $3.37 to $3.01 and $3.35, respectively. The brokerage reaffirmed its ‘Buy’ ratings on both stocks citing ‘the value offered by both companies within the context of the broad secular growth trend for the industry, high barriers to entry and more disciplined industry capacity growth.’

However, Conder added that AGE’s ‘overall near-term mood remains somewhat more cautious given modestly lagging season-to-date pricing trends.’ He expects CCL shares to stay in a $50-$56 range and RCL shares in a $42-$50 range until ‘more convincing’ pricing trends emerge.
(SeaTrade)