Carnival Could See Long-Term Benefits From Covid-19, Analyst Says

The coronavirus pandemic may prove to be a 'net long-term positive' for Carnival, even as the cruise company's operations remain docked and idle.
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The coronavirus pandemic may prove to be a “net long-term positive” for battered cruise-line operator Carnival  (CCL) - Get Report even as the company’s operations remains docked and idle, Stifel analyst Steven Wieczynski said.

In a note to clients, Wieczynski said that while the Covid-19 pandemic has had a massively negative impact on Carnival and other cruise line operators, efforts Carnival has made to cut costs, streamline operations and beef up its cash position are all long-term positives for the Miami-based company.

Complacent/inefficient cost structure, too much older hardware and a “daunting” near-term capacity growth outlook are three areas that have weighed on shares for several years, Wieczynski said in the note.

As a result of the virus, Carnival has had to address these three areas “head on,” with the elimination of $7 billion of annualized operating costs, acceleration of disposal/retirement of older hardware, and reduced rate of near-term new capacity growth, he said.

Indeed, Wieczynski sees Carnival emerging from the crisis as a “leaner and more efficient company,” with around 10% larger average berth size and lower average age. Wieczynski lowered his price target on Carnival to $24 from $30, though kept his buy rating on the shares.

Meantime, Wedbush analyst James Hardiman lowered his price target on Carnival to $20 from $29 on Monday and kept his neutral rating on the shares amid what he expects to be a long haul in terms of the company returning to profitability.

To be sure, cruise operators are showing some signs of life. Carnival rival Norwegian Cruise Line  (NCLH) - Get Report last week said that while it was still experiencing difficult times amid the Covid-19 pandemic and shutdown of the cruise and tourism industries, it was experiencing calmer waters.

Shares of Carnival were up 1.95% at $16.48 in trading on Monday. Shares of Norwegian were up 0.98% at $16.56.