Carnival Corporation (NYSE:CCL) shot up in early trading on Friday after Jefferies upgraded the cruise line operator to a Buy rating from Hold.
Analyst David Katz noted Carnival is pivoting toward cash flow, deleveraging and equity expansion. He highlighted that Carnival (CCL) expects to average $5B in cash from operations for the next three years and should deploy on average $3B of adjusted free cash flow to pay down debt through 2026. Crucially, CCL’s leverage is expected to progress from 6.8X in FY23 to 4.3X in FY24 vs. 2.0X in 2019. A path is seen for a return by Carnival (CCL) to investment grade metrics.
Carnival (CCL) is also expected to benefit from lower fuel costs and improvements to the operating model. Overall, Katz and his team see the valuation on CCL normalizing due to the confluence of positive dynamics.
“The leadership change and the supply and demand recovery, and the resulting capital pivot, drive a significant shift from debt to equity value within the EV and should position the shares as more broadly investable, which could progress over several years. Despite the strong YTD performance, we believe the journey from a good trade to long-term investment case remains ahead.”
Shares of Carnival (CCL) rallied 3.38% in premarket trading to $17.74. The leisure sector stock is up 49% over the last six weeks and is more than 69% higher than the 200-day moving average.
More on Carnival:
Carnival rallies after Jefferies upgrades the cruise line stock to a Buy rating
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