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On Tuesday, Stifel updated its outlook on Carnival Corporation (NYSE:LON:CCL), increasing the price target to $32.00 from the previous $27.00 while keeping a Buy rating on the company's shares.
"Cautiously optimistic/nervous. That would be the best phrase we can use to describe how we feel heading into CCL's first crack at FY25 guidance. It would not surprise us at all to see CCL's initial FY25 guidance underwhelm current lofty expectations," the firm said.
Despite the possibility that Carnival (NYSE:CCL)'s initial FY25 guidance might not meet the high expectations currently held by the buy-side, which anticipates EBITDA to be between $6.7 billion and $6.9 billion, Stifel maintains its positive rating.
The analyst from Stifel highlighted that the consensus on cost expectations for FY25 might be too conservative, estimating an increase of about 3%, compared to Stifel's projection of 4%. This discrepancy could lead to a negative reaction relative to the initial guidance provided by Carnival. On the other hand, the firm anticipates that the consensus yield growth expectation of 3.5% might be on the lower side, suggesting that full-year yields could potentially reach a higher range of 4.5%-5.5%.
The analysis also took into account the strong year-to-date performance of Carnival's shares and the high demand expectations. It was noted that an initial guidance that does not align with these expectations could result in a near-term correction in the share price, barring any new updates regarding Carnival's SEA Change targets.
Stifel reaffirmed its confidence in the cruise industry's core operating fundamentals, expecting that operational adjustments will improve efficiency as the business moves forward. The firm's continued endorsement of a Buy rating on Carnival's shares is based on the belief that the market is significantly undervaluing the company's fundamental earnings power and the potential impact of recent cost efficiency and fleet optimization initiatives on accelerating earnings growth over the long term.
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