HSBC lifts Carnival Corp. rating as it is now ‘in calmer waters’

Investing.com -- HSBC raised its rating for Carnival (NYSE:CCL) Corp. to Hold from Reduce in a note to clients on Friday, citing resilient booking trends, improving profitability, and meaningful progress on debt reduction. 

The firm also raised its price target to $24 from $14 for the U.S.-listed shares, and to 1,645p from 960p for the U.K.-listed shares.

“Booking trends [are] resilient despite macroeconomic concerns, with CCL in a strong booked position,” HSBC said. 

The bank noted Carnival’s 38% year-over-year EBITDA growth in the first quarter, driven by a 7.3% increase in net yields and strong demand across itineraries. 

The company also raised its full-year EBITDA guidance by 2%, citing healthy forward bookings and “continued strength in onboard revenue.”

HSBC acknowledged previous concerns around Carnival’s high leverage and slower recovery versus peers, but now sees those issues easing. 

“Profit recovery appears on track now, with EBITDA margins improving from 16% in Q1 23 to 21%,” analysts wrote. 

HSBC added that Carnival’s gearing has dropped from 6.5x in fiscal 2023 to approximately 4.3x in fiscal 2024, and it expects it to fall further to around 3.5x by fiscal 2025.

While macroeconomic risks remain, HSBC believes cruise operators could outperform in a downturn due to lower capital expenditure requirements and more pricing flexibility than land-based competitors. 

“There remains a large value gap vs. land-based operators,” with cruise pricing roughly “25% lower,” analysts noted.

HSBC concluded that key concerns in its earlier bear case have now been addressed and that Carnival’s shares are “fairly priced” at current levels. 

“We upgrade our ratings on both listings to Hold (from Reduce), aided by strong long-term growth prospects,” concluded HSBC.