Casinos & Hotels

Why Analysts Expect Huge Upside for Carnival

Carnival Corp. & PLC (NYSE: CCL) has seen a rising tide recently, as more Americans are vaccinated against COVID-19. Many analysts are putting the cruise and airline industries at the forefront of the reopening trade and, as a result, we are seeing shifting price targets and ratings.

UBS was the biggest bull on the cruise line operator. The brokerage firm upgraded Carnival to Buy from Neutral and raised its price target from $20 to $42, which implies upside of 45% from the most recent closing price of $28.93.

JPMorgan was more on the sidelines, reiterating a Neutral rating on Carnival but raising its price target to $33 from $23.

BofA Securities also reiterated a Neutral rating and offered this investment rationale:

The cruise industry has been severely impacted by the COVID-19 outbreak and near-term to most of revenue sailings remain uncertain. Nevertheless, vaccine news are giving us confidence to a gradual resumption of industry growth and we expect solid recovery in 2022, but it looks largely reflected in current valuation. Group’s actions have improved its cash burn rate / liquidity profile.

BofA Securities went on to say that Carnival is a pure play for the leisure recovery and recent vaccine headlines are giving confidence to a gradual resumption of industry growth and solid recovery in 2022. However, near-term a return to most of revenue sailings remains uncertain, and the firm believes a solid recovery is already priced in the current share price, with Carnival trading above 10.5 times prior peak EBITDA (fiscal 2019), above the historical average.

Again, the firm believes Carnival has taken pertinent actions to be well placed in the recovery, including reducing fleet capacity. The liquidity position is solid (roughly $9.5 billion in cash and cash equivalents) but debt increased versus pre-pandemic and deleveraging likely will be a multiyear process.

Carnival stock traded up 1% on Thursday to $29.23, in a 52-week range of $7.80 to $30.12. The consensus price target is $21.53.