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Why Carnival Is Outpacing the Gains of the Market Indexes Today

By Rich Duprey - Jun 30, 2021 at 2:05PM

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The cruise line operator could soon be riding a wave of good news.

What happened

Shares of Carnival (CCL -5.63%) (CUK -5.22%) were up 2.2% as of 1:37 p.m. Wednesday. Investors seem to still be digesting the cruise ship operator's $500 million stock sale proposal, while an analyst maintained his buy rating on the stock.

So what

Carnival's planned stock offering is somewhat different from what we've come to expect from companies in its segment of the travel and tourism industry over the past year and a half. While many cruise lines have issued stock to raise the cash they needed just to stay afloat, as my colleague Dan Caplinger points out, the company will only be selling this tranche of common stock of Carnival Corp. (CCL) when its U.K.-traded Carnival plc (CUK) shares are trading at a relative discount. It will then use some of the proceeds of the CCL sales to buy back CUK shares.

"As a result, Carnival Corporation and Carnival plc would derive an economic benefit from the offering and the use of proceeds therefrom," Caplinger writes.

Cruise ship at sunset

Image source: Getty Images.

Now what

Argus analyst John Staszak remains bullish on Carnival, and he reiterated his buy rating and $35 per share price target for it. That implies a 35% gain from where the cruise line operator's stock closed Tuesday.

With a Carnival sailing out of Galveston, Texas, scheduled for July 3 and advance bookings in its fiscal second quarter (which ended May 31) running 45% ahead of the prior quarter, Staszak is convinced that pent-up demand for cruise vacations remains strong, so he scaled up his earnings estimate for its fiscal 2022 by 122%, from $0.36 per share to $0.80 per share.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Carnival Corporation Stock Quote
Carnival Corporation
CCL
$10.56 (-5.63%) $0.63
Carnival Corporation Stock Quote
Carnival Corporation
CUK
$9.62 (-5.22%) $0.53

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