Carnival surges 3.2% on Morgan Stanley upgrade
Analyst cites attractive risk-reward profile as stock trades at less than 10x forward earnings
Carnival Corporation shares jumped 3.2% to $24.94 in Thursday trading after Morgan Stanley upgraded the world's largest cruise operator to Overweight from Equal Weight, citing an improved risk-reward profile despite recent market turbulence.
The upgrade comes as Carnival stock has declined 28% from its recent peak, a drop that analyst Jamie Rollo says exceeds the firm's 14% and 6% reductions to earnings estimates for fiscal years 2026 and 2027, respectively. Rollo set a new price target of $31, representing approximately 27.9% upside from recent levels, though this is a reduction from the previous $33 target.
The stock now trades at less than 10 times estimated fiscal year 2027 earnings per share, according to Morgan Stanley's analysis. Rullo noted that historically, similar 30% declines have led to rebounds of 40-120%, providing comfort for the bullish call.
Carnival's recent financial performance has shown strong recovery momentum. The company reported Q4 2024 net income of $303 million, or $0.23 per diluted share, on record revenues of $5.9 billion, representing a 10% increase year-over-year. For full year 2025, Carnival projects approximately 20% earnings growth with net income guidance exceeding $2.3 billion.
Customer deposits reached a quarterly record of $6.8 billion, and cumulative advanced bookings for 2025 are at all-time highs for both price and occupancy, according to the company's December earnings release. This strong demand backdrop has supported increasingly positive analyst sentiment, with BNP Paribas Exane initiating coverage with an Outperform rating and $26 price target in March.
Morgan Stanley acknowledged some near-term headwinds, reducing its fiscal year 2026 net revenue yield assumption by 100 basis points to 2.0% due to "softer European demand." The firm also highlighted Carnival's high fuel sensitivity, noting that every $10-per-barrel change in oil prices impacts fiscal year 2026 earnings per share by 5%.
However, Rollo pointed to Carnival's limited exposure to the Middle East, which accounts for only 1-2% of capacity, as a mitigating factor against geopolitical risks. The analyst compared the current decline to previous drops during conflicts like the Iraq War, Russia-Ukraine war, and Arab Spring, after which the company experienced significant rebounds.
Thursday's rally came on elevated volume of 27 million shares, well above average trading levels, signaling strong institutional interest following the upgrade. The stock remains well below its 52-week high of $33.87 but has recovered significantly from its year-to-date low of $15.00.
Analyst ratings for Carnival remain predominantly positive, with 20 analysts recommending buy ratings compared to 9 holds and no sell ratings, according to market data. The consensus price target stands at $37.44, suggesting substantial upside from current levels. Institutional investors hold approximately 71.4% of outstanding shares, indicating strong conviction among large holders.
The broader cruise industry has transitioned firmly into a growth cycle, with global passenger volume reaching approximately 37 million travelers in 2025, surpassing pre-2020 levels, according to industry data. This recovery has benefited all major operators, but Carnival's scale across 10 cruise line brands and over 100 vessels positions it to capture the majority of this demand growth.
Investors will be watching for early signs of booking strength heading into the peak spring selling season, as well as any updates on European demand trends that Morgan Stanley flagged as a potential concern. Fuel prices and geopolitical developments remain key variables for the sector, but Morgan Stanley's upgrade suggests the current valuation provides sufficient margin of safety despite these uncertainties.