Why did Carnival shares rally 13% today?

Carnival Corporation (LSE: CCL), the FTSE 250 listed cruise ship company, witnessed a remarkable 13% surge in its shares today as they rallied following upgrades by JPMorgan Chase and Bank of America. JPMorgan Chase upgraded Carnival from a neutral rating to overweight, while Bank of America revised its stance from neutral to buy. The upgrades were primarily attributed to the sustained demand momentum in the cruise industry, according to the analysts.

The market responded positively to the news, driving Carnival’s share price to a closing value of 1,023.50p up 115.10p on the day.

BofA Securities analysts, who upgraded their recommendation on Carnival, held meetings with all three publicly traded cruise companies in Miami to gather industry insights. These discussions provided valuable information, leading the analysts to conclude that the cruise industry’s demand remained strong despite the prevailing consumer uncertainty.

The analysts further highlighted that the pricing environment within the industry was rational and that Carnival’s booking curves were aligned with the company’s expectations. This suggests a stable and predictable revenue stream, an important consideration for long-term investors seeking growth opportunities.

“The cruise industry’s long booking window and strong current demand could make it less vulnerable to a slowdown in leisure consumer spending compared to other travel sectors,” stated the analysts. This statement underscores their belief that Carnival’s business model, characterized by extended booking lead times and robust customer demand, positions it favourably against potential challenges faced by other segments of the travel industry.

Additionally, the analysts noted several factors supporting their improved view of Carnival. These factors included a reduction in balance sheet risk, an increased focus on revenue generation, a better mix of ships compared to pre-pandemic times, and a reasonable valuation for the company across various metrics.