UBS is showing more optimism for Carnival Corp amid greater availability of Covid-19 vaccines.
The Swiss investment bank has raised its outlook on the cruise major's shares from "hold" to "buy", according to a note released on Thursday by UBS Securities analyst Robin Farley.
"While the near-term outlook has got worse, with continued delays in restart, the longer-term outlook has improved as vaccines become more widespread than what we originally factored into our estimates last year," she wrote.
Farley said Carnival's Europe-focused brands may start before those that source from the US pull up anchor possibly in the third quarter.
UBS is maintaining the same outlook for Carnival's peer competitors, keeping Royal Caribbean Group's stock at "buy" and Norwegian Cruise Line Holdings' shares at "neutral".
UBS expects cruise capacity to reach about 7% in the second quarter but then grow to 75% over a year to average about 37% for 2022, given a limited number of ships will sail at reduced capacity.
'Demand will exceed supply'
"Despite what is likely to be a challenging restart period, we believe demand will exceed supply, partly because supply will be so limited initially and also because there will be 2-3 years since the last cruise for many itineraries," she wrote.
"We expect to see pent-up demand for leisure travel generally, since leisure travel is not yet able to be replaced by a zoom [call] and cruising is pure leisure travel."
UBS also improved its outlook on yield recovery for 2023, expecting it to be only as much as 4% less than 2019 levels, instead of the 13% previously forecasted.
"For Carnival, there is a little more relative improvement given that Carnival includes some brands that source primarily from Italy, Germany and the UK, and those countries are likely to allow cruising to restart before the US," she said.
Carnival's German brand AIDA Cruises is expected to restart sailing on 20 March in the Canary Islands, while Italian brand Costa Cruises is set to head out at the end of May.
"Additionally, the UK maritime minister recently reported cruise could restart in the UK on May 17," Farley said.
