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Carnival stock jumps on analyst upgrade with cruise recovery 'now stable'

Josh Schafer
·Reporter
Updated ·2 min read

Carnival Corp.'s stock (CCL) led the cruise line industry higher on Monday after an upgrade from Bank of America analysts that noted demand is 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 both Royal Caribbean (RCL) and Norwegian Cruse (NCLH) lines while keeping a Neutral rating on both companies.

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

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

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"In our opinion, the cruise industry's long booking window and strong current demand could allow it to be less susceptible to a slowdown in the leisure consumer relative to other areas of travel," Didora wrote.

Bank of America sees strength in cruise spending in its own data. Bank of America-aggregated credit and debit card spending shows travelers spent 17.3% more on cruises in May than they did in the same month in 2019. Spending has been up a minimum of 11.0% on a monthly basis dating back to December, per BofA data.

For BofA, Carnival appears attractive as it's trading at a lower price-to-earnings ratio than the other cruise lines. Carnival's 8.3x PE ratio is below the company's 10-year average of 10x and below the 10x at Royal Caribbean, and Norwegian Cruise Lines' 9.1x. Additionally, BofA believes balance sheet risk, including rising debt, has been reduced.

"I am a former treasurer," Carnival CEO Josh Weinstein told Yahoo Finance in May. "And so getting back a fortress balance sheet is incredibly important to us. We peaked at $35 billion of debt. I was very, very happy to say on our last earnings call two very important things. Number one, we have no intention of issuing any more equity. And number two, we are starting to pay down the 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 Friday, Feb. 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 Friday, Feb. 17, 2023. (Allen J. Schaben / Los Angeles Times via Getty Images) (Allen J. Schaben via Getty Images)

Josh is a reporter for Yahoo Finance.

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