UPDATE: Credit Suisse Upgrades Carnival Corporation (CCL) to Outperform
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Credit Suisse analyst Benjamin Chaiken upgraded Carnival Corporation (NYSE: CCL) from Neutral to Outperform with a price target of $40.00 (from $18.00).
The analyst comments "There are 4 drivers that we think cause CCL to outperform. (1) CCL is disposing of 19 ships, which will drive 4% better unit economics and 3% better fuel economics. Currently, street estimates show ’22 cruise costs (NCC) ~flat with 2019. (2) We think sentiment is changing at CCL internally around shore side costs (i.e., land-based expenses), opening the door to further cost enhancements (e.g., more efficient marketing, potentially lower headcount). CCL has not quantified this tailwind, but we think a tailwind of 5% or more is reasonable. For example, timeshare company VAC is reducing cost by ~$75m (specifically related to COVID efficiencies), which we think equates to a 20%+ reduction in G&A. Keep in mind, VAC was already a high-performing, lean company and was able to find material costs cuts; this also aligns directionally with improvements at other large organizations (e.g., MAR recently found 15% savings). (3) CCL has multiple tranches of debt at 10%+ rates, which present the opportunity to refinance, which would represent potential upside to our estimates. While there is a debate on if/when to call debt, there are still somewhat near-term opportunities that could benefit the stock. For example, CCL has $4bn of 11.5% debt due 1H’23, currently trading at $115, which alone could be $0.20 accretive at more recent rates. (4) Easy comparisons story in Europe, which was a material drag for CCL prior to COVID."
Shares of Carnival Corporation closed at $28.56 yesterday.
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