Carnival Stock has room to run even after record month, says Jefferies

(Bloomberg) – The shares of Carnival Corp. have never seen a better month and at least one analyst says investors should expect more of the same.

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The cruise operator jumped 9.7% on Friday, taking its earnings for June to a record 68% after Jefferies upgraded its rating to buy pending and raised its price target to $25. Competitors Royal Caribbean Cruises Ltd. and Norwegian Cruise Line Holdings Ltd. also traded higher.

“Despite the strong year-to-date performance, we believe that the transition from a good transaction to a long-term investment case is still to come,” analyst David Katz wrote in a note to clients.

While cruise operators have seen an increase in demand this year in the wake of the pandemic, there have also been signs that the post-Covid travel spike may be starting to subside. Data from the US Travel Association earlier this month estimated that leisure travel to the United States will grow 1.4% this year and around 3% or less in each of the next three years, a strong down from growth of 27% in 2021 and 6.2% last year. .

Read more: US travel growth expected to slow as post-pandemic demand declines

Yet investors have been quick to pile into cruise stocks. Carnival’s 134% gain this year makes it the third-best performer in the S&P 500 index, behind Nvidia Corp. and Facebook owner Meta Platforms Inc. Meanwhile, Royal Caribbean has more than doubled this year and is on track for its best annual performance since 1997, while Norwegian has jumped 78%, which should be a record year.

Katz points to Carnival’s strong demand growth and pivot to positive cash flow as the reason the stock should continue to perform well. The company told investors on its second-quarter conference call on Monday that it expects cash flow from operations to average $5 billion a year over the next three years.

CEO Josh Weinstein, who took the helm in August to shape the company’s post-pandemic strategy after years of shutdowns that have left travel and leisure businesses on the edge, is also a major driver of the resurgence of Carnival and its long-term appeal, according to Katz.

“It has become clearer to us that his operational engagement has and should continue to prove beneficial to the business and its bottom line,” Katz said.

–With help from Dawn McCarty.

(Updated stock movements at market close)

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