Carnival Initiated Buy as Citi Sees Strong Bookings Rebound

Citi initiated coverage of Carnival at buy, expecting a "good recovery in demand" and a strong rebound in bookings.
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Carnival  (CCL) - Get Report shares rose after Citi initiated coverage of the cruise titan with a buy rating and a $30 price target.

Citigroup analyst James Ainley’s reasoning is the same as most other Carnival bulls: Quick vaccine distribution and economic recovery will lead to strong demand for cruises.

“COVID has given the industry a near fatal blow, but we do expect a good recovery in demand as [the] vaccine rollout continues,” Ainley wrote in a commentary cited by Barron’s.

“We expect bookings to rebound strongly.” 

Carnival’s COVID safety protocols will boost consumer confidence, he said.

Carnival recently traded in $26.87, up 1.2%. It has soared 77% over the past six months as investors are excited about the vaccine distribution and the prospects of economic recovery.

Carnival’s ships have largely been shut down since the pandemic broke out in earnest last March.

Last week, the Centers for Disease Control and Prevention said the ban on U.S. cruises until Nov. 1 was still in place.

To be sure, Carnival will be weighed down by the billions of dollars of debt and equity it has issued over the past year, Ainley said. But he figures that gives the company about 19 months of liquidity with few or no cruises.

Last month, UBS raised its rating on the cruise operator to buy from neutral and more than doubled its target price to $42 from $20 on optimism for the company's long-term prospects.

Also last month, J.P. Morgan analyst Brandt Montour raised his Carnival target price to $33 from $23, keeping his rating at neutral. He cited pent-up leisure-travel demand among other factors.