Carnival stock jumps on analysts’ upgrade with cruise recovery ‘now stable’

Shares of Carnival Corp. (CCL) led the cruise industry higher on Monday after an upgrade from Bank of America analysts who noted demand was trending higher and in some cases surpassing pre-pandemic levels.

Bank of America upgraded Carnival to Buy from Neutral and raised its price target from $11 to $20. It also raised price targets for the Royal Caribbean (RCL) and Norwegian Cruse (NCLH) lines while maintaining a neutral rating on the two companies.

“The cruise recovery is now stable,” Bank of America analyst Andrew Didora said in a note Monday after meeting with the management teams of the three publicly traded cruise lines.

While still trading at a significant discount to pre-pandemic levels, all three cruise stocks rallied to start 2023, with Royal Caribbean up nearly 100%.

“In our view, the cruise industry’s long booking window and current strong demand may allow it to be less susceptible to a slowdown in leisure consumption compared to other areas of travel,” wrote Didora.

Bank of America sees the strength of cruise spending in its own data. Aggregated credit and debit card spending from Bank of America shows travelers spent 17.3% more on cruises in May than in the same month in 2019. Spending rose by at least 11, 0% on a monthly basis since December, per BofA data.

For BofA, Carnival looks attractive as it trades at a lower price-to-earnings ratio than other cruise lines. Carnival’s PE ratio of 8.3x is below the company’s ten-year average of 10x and below 10x at Royal Caribbean and 9.1x at Norwegian Cruise Lines. In addition, BofA believes that balance sheet risk, including increased debt, has been reduced.

“I’m a former treasurer,” Carnival CEO Josh Weinstein told Yahoo Finance in May. “And so getting back a fortress balance sheet is extremely important to us. We’ve peaked at $35 billion in debt. I was very, very happy to say on our last earnings call two very important things. First, we we don’t plan to issue more equity, and number two, we’re starting to pay down debt.

LONG BEACH, CA - FEBRUARY 17: An aerial view of the Carnival Radiance, a Destiny-class cruise ship, as it heads out to sea in Long Beach at sunset on Friday, February 17, 2023. (Allen J. Schaben /Los Angeles Times via Getty Images)

LONG BEACH, CA – FEBRUARY 17: An aerial view of the Carnival Radiance, a Destiny-class cruise ship, as it heads out to sea in Long Beach at sunset on Friday, February 17, 2023. (Allen J. Schaben /Los Angeles Times via Getty Images)

Josh is a reporter for Yahoo Finance.

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