Carnival PLC at Fair Valuation

We maintain our Hold rating for Carnival plc (CUK) following the release of fourth quarter financial results. We expect Carnival to continue to trade at a premium to its largest competitor over the near-term.

However, given our expectation for continuing margin pressures, especially related to significantly higher fuel expenses, we do not feel that further material price appreciation is warranted at this time. Accordingly, we continue to prefer the valuation of Royal Caribbean (RCL) at current levels.

Carnival has historically traded at a slight premium to Royal Caribbean, based on forward price to earnings multiples. This relationship still holds, based on current prices and our forward 12-month EPS estimates for both companies. For the second quarter of fiscal year 2008, management expects diluted earnings to be in the range of $0.42 to $0.44 per share and estimates net revenue yields to increase 6.5% to 7.5% versus the prior year (2.5% to 3.5% on a constant dollar basis), driven primarily the improvement in Caribbean pricing.

For fiscal year 2008, management expects diluted earnings per share to be in the range of $3 to $3.20, down from the previous guidance range of $3.10 to $3.30, and compared to $2.95 recorded in fiscal 2007. Fuel expenses for 2008 are now expected to increase by $532 million over 2007, or approximately $0.65 per share.While Carnival plc is trading at 13.1x estimated 2008 earnings, Royal Caribbean is currently trading at 10.3x estimated 2008 EPS. We expect Carnival to continue to trade at a premium over the near-term. As such, our six-month target price of $40 is based on a multiple of 13x expected 2008 earnings.

Change Needed at RAIT Financial

For the full year, RAIT Financial Trust (RAS) reported a net loss of $6.26 per share. As expected, RAS recorded large impairments on its loans, mainly due to the trust preferred portfolio. Adjusted EPS, excluding impairments was $0.47 per share in 4Q06, slightly below our estimates.

We expect more impairments and losses on asset sales in the coming quarters due to loans which continue to drop in value. The company continues to see deterioration in its residential mortgage portfolio and took large impairments in 2007. We do not expect the environment to improve in 2008. The company's traditional sources of short-term financing, repurchase agreements and warehouse lines are no longer available.

RAS will need to change its business plan in response to the continued deterioration in the credit markets. Credit qualities have been declining in the company's residential business, and now its commercial mortgage portfolio is also being affected. Market conditions caused the company to cut its dividend by nearly 50% in 2007.

Another large dividend cut is probable in the coming quarters.