Covid-19 Surprisingly Has Turned Carnival Into a Long-Term Buy

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The coronavirus pandemic and subsequent pummeling of the cruise and broader tourism industries may actually prove to be a net positive for Carnival  (CCL) - Get Report.

That according to Stifel analyst Steven Wieczynski, who told clients on Monday that  the coronavirus pandemic may prove to be a “net long-term positive” for the battered cruise-line operator, even as the company’s operations remains docked and idle,

In a research note, 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.

But thanks to the pandemic, Carnival has addressed these areas “head on,” eliminating some $7 billion in annualized operating costs, 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.

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