Analyst Note| Jaime M. Katz, CFA |
We don’t plan any material change to our $26.50 (GBX 1,940) per-share fair value estimate for no-moat Carnival after digesting fourth-quarter results, which included a $2 billion adjusted loss. This metric was in line with our forecast and matches the magnitude of losses in prior six quarters since the start of the coronavirus pandemic. Shares have remained under pressure since omicron was announced as a variant of concern by the World Health Organization in November, providing a compelling valuation for investors. However, we expect performance to remain inconsistent over the near term given the proliferation of new variants, suggesting investors consider a wide margin of safety. Like prior variants, weak demand surrounding omicron should prove transitory, with Carnival noting that cumulative advanced bookings were at the high-end of historical ranges with pricing for second-half 2022 and the first half of 2023, higher than in 2019 (even including future cruise credits). The willingness of consumers to cruise is also evidenced by customer deposits of $360 million as of Nov. 30, up sequentially, displaying that new interest is attracted to the cruise product.