Analyst Note| Jaime M. Katz, CFA |
We don’t plan any material change to our $24 per share (GBX 1,740) fair value estimate for no-moat Carnival after its second-quarter update. While the period’s adjusted net loss of $2 billion was wider than the $1.2 billion loss we had forecast as restart costs began to build, the confirmed deployment of 27 ships in the third quarter (35% of capacity) and another 15 ships in the fourth quarter (20%) indicate that more than 50% of the firm’s berths should be sailing by the end of fiscal 2021. We remain cautiously optimistic that this cadence of deployment is achievable if the global vaccine rollout expands consistently. However, we’d caution investors to wait for a wider margin of safety to take a sail in shares given the still high uncertainty in near-term cash flows as Carnival burns cash to redeploy its fleet.