On Friday, Stifel increased its price target for Carnival Corporation (NYSE:CCL) shares to $27.00, up from the previous target of $25.00. The firm has maintained its Buy rating on the stock. The adjustment comes as the analyst anticipates Carnival Corporation to potentially raise their full-year guidance during their earnings report scheduled for September 30th, citing robust close-in demand and pricing.
The analyst noted that booking patterns for the cruise operator appear healthy and there has been no observed decline in onboard customer spending. The recent rally in Carnival's shares has been attributed to a drop in oil prices, anticipation for third-quarter earnings of fiscal year 2024, and an upcoming investor event in early October. Despite the rally suggesting that a beat and raise quarter may already be priced in, the analyst expressed a belief that there is still potential for upside.
The optimism is also based on the expectation that Carnival will start generating significant free cash flow (FCF) post-2024, which is projected to aid in rapidly reducing the company's debt levels. The firm's revised estimates are higher than before, suggesting that their previous figures were too conservative. The new price target of $27 is based on a 10-times multiple of Carnival Corporation's estimated 2026 EBITDA.
The report indicates that investors might be underestimating the future FCF generation capabilities of Carnival, which is expected to commence after 2024. This FCF is seen as a key factor in improving the company's balance sheet. The analyst concluded by stating confidence in the shares and the potential for next year's earnings per share (EPS) to potentially reach a value beginning with a two when finalized.
In other recent news, Carnival Corporation reported record Q2 earnings, surpassing its guidance with a $170 million bottom-line outperformance, driven by a 12% increase in yields. This led to record revenues, operating income, and all-time highs in customer deposits and booking levels. The company's outlook remains positive, with an 8% yield guidance for Q3 and improved full-year net income guidance by $275 million due to increased yields and cost savings.
In addition, Carnival announced the expansion of its fleet with three new liquefied natural gas (LNG)-powered ships, scheduled for delivery in 2029, 2031, and 2033. The agreement with Italian shipbuilder Fincantieri will result in the construction of the largest ships in the Carnival Corporation global fleet, each boasting nearly 230,000 gross registered tonnes.
Analyst firms Mizuho Securities, Truist Securities, Argus Research, and Macquarie have all maintained their positive ratings on Carnival Corporation and increased their price targets, reflecting confidence in the company's robust demand and extended booking curve. Carnival is also in the process of strategic brand consolidation, with plans to sunset P&O Cruises Australia and integrate it into Carnival Cruise Line.
Finally, Carnival Corporation is developing a new destination, Celebration Key, expected to launch in 2025, which is anticipated to contribute to revenue and fuel efficiency. The company is actively working towards its 2026 SEA Change sustainability targets and reducing debt and interest expenses to strengthen its capital structure. These are recent developments indicating Carnival Corporation's continued growth and improved returns.
InvestingPro Insights
As Carnival Corporation (NYSE:CCL) approaches its earnings report with positive expectations from analysts, the InvestingPro data reinforces the notion of a company on the rebound. With a market capitalization of $21.22 billion and a significant revenue growth of 34.02% over the last twelve months as of Q2 2024, Carnival's financial health appears robust. The company's gross profit margin stands at an impressive 51.17%, highlighting efficient operations and cost management.
InvestingPro Tips suggest that Carnival's net income is expected to grow this year, which aligns with the analyst's anticipation of an upward revision in full-year guidance. Additionally, the stock's recent strong return over the last month, with a price total return of 19.84%, indicates bullish investor sentiment. However, it's worth noting that short-term obligations exceed liquid assets, which could be a point of concern for investors focused on short-term liquidity.
For those interested in further analysis and additional InvestingPro Tips, there are more insights available on Carnival Corporation, which can be found by visiting the InvestingPro platform. With these data points and tips, investors can make more informed decisions regarding their interest in CCL shares.
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