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Cruise line operator Carnival has raised its annual profit forecast, but the company anticipates being affected by the recent Baltimore bridge collapse. To delve deeper into this matter, we’ve invited Jamie Cat, Senior Equity Analyst at Morning Star, to share insights.
bridge collapse
Jamie, thank you for joining us. Carnival has raised its outlook for 2024 amid record-setting demand for cruises. However, the company also mentioned a negative impact stemming from the Baltimore bridge collapse. Can you elaborate on Carnival’s stance regarding this event?
According to Jamie, the commentary surrounding Carnival’s performance has been largely positive. With nearly $7 billion in bookings or advanced ticket sales, consumers are showing significant interest in the product. Despite the tragic incident in Baltimore, which may have a negligible impact, Carnival has managed to find an alternate port, mitigating potential disruptions.
Regarding the sustainability of the cruise booking boom, Jamie suggests that while early bookings may reflect heightened demand, pricing is expected to normalize over the year. Carnival anticipates double-digit yield growth in the first half, tapering to a mid-single-digit increase in the latter half. Looking ahead, a long-term outlook indicates low single-digit growth, aligning with historical trends.
Moving on to geographical risks, Carnival has some exposure to the Red Sea, where recent attacks have occurred. However, the company has implemented ship redeployments, minimizing significant exposure and ensuring operational continuity.
Regarding earnings growth, Jamie highlights that Carnival’s updated guidance aligns with expectations, with no significant changes anticipated. The competitive landscape includes other cruise lines and land-based options. However, cruise operators emphasize their value proposition, offering inclusive packages that make cruising a cost-effective option compared to land-based vacations.
With a buy rating and a price target of $27.50 per share, Morning Star’s valuation is based on a discounted cash flow model, factoring in price growth, cost growth, and modest capacity expansion over time, in line with Carnival’s ship build order book.
In conclusion, while Carnival faces challenges such as the Baltimore bridge collapse and geopolitical risks, its optimistic outlook and strategic initiatives position it for continued growth in the cruise industry.
