Carnival: the impact of pandemic extends to 2022

The restart of the services at Carnival (CCL) is going slowly, but meanwhile the company is taking advantage of other opportunities arising from the structural design of its company.

To take advantage of the arbitrage between its two classes of shares, the company recently said it will issue new Carnival Corporation (US) shares with the intention of using the proceeds solely to buy Carnival plc (UK) shares.

Throughout the pandemic, the gap between the two stocks has widened from what is usually a mid-single digit percentage to about 14% right now, and has sometimes widened to 20%.

Therefore, Berenberg’s Stuart Gordon thinks the step is sensible.

“We believe this will provide some support to Carnival plc’s shares, and it is also management’s wise decision to limit arbitrage,” the analyst said.

As for the company itself, Carnival has so far announced restart dates for 42 ships, which will be staggered through the end of the year, accounting for about half of the “total berths.”

“In our view,” Gordon added, “this reflects the significant logistical challenge the industry faces in resuming services. This is due to a mix of both ship readiness and the short window available to sell cruise vacations.”

While the analyst has no doubts about consumers’ strong desire to board cruise lines again, Gordon sees the time frame to sell inventory “efficiently” as far too short. As such, Gordon expects the pandemic to weigh on the company’s operational performance through next year.

And while the analyst is upgrading Carnival plc’s rating to Hold (from Sell) after considering that the risk of further declines is no longer “within acceptable parameters”, “ongoing concerns” about the operational outlook are reflected in the rating of Carnival plc. Carnival Corporation that remains a Sell. The $20 price target also remains, suggesting the stock will remain in range for the foreseeable future. (To view Gordon’s record, click here)

On Wall Street, carnival reviews remain a mixed bag; based on 5 purchases and 3 shares held and sold each, the analyst consensus rates this stock as a held. On the other hand, the average price target is, somewhat confusingly, bullish; at $29.22, the figure suggests stocks will change hands in a year at a premium of ~40%. (See CCL stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are those of the featured analyst only. The content is for informational purposes only. It is very important to do your own analysis before making any investment.