Analyst Note| Jaime M. Katz, CFA |
No-moat Carnival printed preliminary third-quarter results that included a $1.7 billion adjusted net loss, in line with the $1.76 billion loss we had forecast. With the entire fleet offline in the period, there is little anticipated by way of revenue, a factor we expect to improve incrementally in the fourth quarter, with two Costa ships set for sailings by Sept. 19 and Aida teed up for deployment in the autumn. This pause in operation has given Carnival the opportunity to prune its fleet, and the firm now expects 18 ships to exit the fleet (12% of capacity) over the near term. These 18 ships accounted for just 3% of operating income in 2019, leaving Carnival with a fleet that could generate a richer EBITDA margin mix once sailings resume in earnest. Given limited financial detail and our forecast proximity to net income, we don’t plan to alter our $20 (GBX 1,600) fair value estimate and will re-evaluate the intrinsic value when full financial statements are disclosed at the end of September.