What happened
Shares of Carnival (CCL -0.66%) were moving higher today after the cruise line got an analyst upgrade, the latest endorsement it's received following its second-quarter earnings report at the beginning of the week.
The stock closed up 9.7% on the news.
So what
Jefferies raised its rating on the cruise stock from hold to buy and lifted its price target from $9 to $25, implying nearly 50% upside in the stock from its closing price last night.
Jeffries analyst David Katz said the demand recovery could "drive a significant shift from debt to equity value" and make the stock more investible, which he believes will play out over several years as the long-term investment case solidifies. He also said the company was expected to spend $3 billion of its free cash flow on paying down debt each year over the next three years, which will help it crawl out of the hole it was pushed into during the pandemic.
The upgrade comes after other analyst endorsements for Carnival earlier in the week, and today's gains represent its third significant jump, as the stock also rallied on Tuesday and Wednesday.
Oddly, the stock fell on Monday after the actual earnings report came out, though the cruise operator beat analyst estimates and raised its guidance for the full year. Some deemed Monday's sell-off a "sell the news" event, as the stock had already nearly doubled this year coming into the report.
Now what
Carnival touted record bookings once again in the second quarter as the company continues to see sky-high demand as it recovers from the pandemic. While it's true that the cruise line faces a significant headwind from its debt burden and interest payments, and shares outstanding jumped during the pandemic as it needed to raise capital to stay in business, what will ultimately determine the stock price is the health of the business.
If demand continues to be strong, expect Carnival stock to keep marching higher.
