Carnival Earnings: Higher Prices Bolstered by Robust Demand, Rendering Shares Attractive

Shares of narrow-moat Carnival were flat after investors digested first-quarter results and an updated full-year outlook. While the first quarter was a touch better than what both we and consensus (FactSet) had expected, Carnival's amended full-year 2024 EPS forecast for $0.93 (near our $0.90 projection) was below Wall Street's $1.01 estimate. We are not changing our $27.50/GBX 2,160 fair value estimates, and we believe the positives still outweigh the negatives for Carnival. A few key demand factors support our constructive stance on shares. To start, booking volumes closed the first quarter at an all-time high and at higher prices versus 2023. Thus, there is less risk for pricing pressure via bundling over the remainder of the year with little inventory left to sell in 2024. Next, customer deposits have reached $6.6 billion, up more than 20% versus last year, displaying consumers' willingness to commit to Carnival's offerings. Lastly, the firm lifted its full-year as-reported net yield outlook by 100 basis points to 9.5%. Not only does this change include the outperformance in the first quarter, but it also includes a lift in pricing over the remainder of the year from initial expectations.