Is the Carnival share price set to soar?

When it comes to picking out those companies that bore the brunt of the coronavirus crash in 2020, cruise operator Carnival (LSE: CCL) springs to mind. Its share price sank from 3,120p at the end of January to 778p by the end of March. I remember it vividly. I owned the stock at the time.

Having uncharacteristically sold my position for fear that Carnival’s very existence was under threat, I vowed never to return. Will I live to regret this? Perhaps. Let’s look at why the shares might be about to rally hard.

Why might the Carnival share price rally?

There are a few reasons. Perhaps the biggest of these is that vaccination programmes seem to be going swimmingly. The huge fall seen in infection rates in the UK is undeniably positive and should mean domestic cruises can technically restart from 17 May as planned.

Naturally, it may take a while longer for Carnival to kickstart its operations. However, the demand seems to be there. Earlier this month, the FTSE 100 member revealed forward bookings had been better than expected. In fact, volumes of all future cruises were roughly 90% up compared to the previous quarter. That’s despite the company doing very little advertising or marketing.

In response to this news, broker Peel Hunt elected to increase its target for the Carnival share price from 1,850p to 2,100p. Assuming this comes to pass, that would give me a gain of 26% if I bought today. That’s hardly shabby for such a big company. 

Too optimistic?

However, not everyone agrees. Investment bank Berenberg raised its target price to 1,400p (lower than where it is now) but still rated the stock as a ‘sell’. Analyst Stuart Gordon added that the recovery was already priced in, based on a “blue-sky scenario” of everything going to plan. I’m inclined to agree. 

While I now expect the company to recover in time, I simply can’t get past the fact Carnival is now swimming in even more debt than it already was. This situation won’t be helped by rising fuel costs and the need to spend to comply with new health regulations. 

Investors also need to reflect on just how good trading needs to be to bring the Carnival share price back to pre-coronavirus levels. As things stand, it’s still almost 50% below where it was. Is consumer confidence now so high that this gap will be closed at a rate of knots? I’m not so sure. Nor am I sure that people will prioritise spending with Carnival over all the other land-based things they could be doing with their new-found freedom. 

A final drawback from investing in Carnival now is that investors aren’t currently being paid for their patience in the form of dividends. For me, this income stream was one of the major attractions of the company. The idea being that Carnival could help balance out the risk from more growth-focused stocks elsewhere in my portfolio. That turned out well. 

Once bitten…

My experience with this FTSE 100 giant wasn’t a pleasant one. As such, I’m not sure I’d be willing to risk my cash again. The Carnival share price may well rally hard over the rest of 2021, but I remain convinced there are safer ways of making money elsewhere in the FTSE 100.