Carnival shares slump 5.2% as UBS cuts price target. Time to sell?
Carnival’s dimming prospects dragged down the share prices of peers Royal Caribbean and Norwegian Cruise Line, outpacing declines in the S&P 500 index.
Carnival (CCL) shares slumped 5.2% after UBS cut its price target for the stock, joining other bank analysts in flagging risks to the cruise line operator earnings.
UBS cut its price target for Carnival to $12, from $23, MT Newswires reported. The investment bank sees Carnival’s fuel expenses climbing to $2.3 billion in fiscal year 2023, from $2.1 billion this year, while interest costs are seen surging to $1.6 billion, according to the report. That could shave the company’s earnings per share next by about $0.26, it said.
Carnival’s deteriorating prospects also dragged down the share prices of its peers. Royal Caribbean Group (RCL) tumbled 5.2%, while Norwegian Cruise Line Holdings (NCLH) plummeted 4.3%, outpacing a 0.8% decline in the S&P 500 index.
Morgan Stanley analysts remain cautious on the cruise sector due to uncertain demand outlook, high industry capacity growth, cost pressures and elevated debt levels that would require further equity raises. That puts them in a dire situation should funding dry up as monetary conditions tighten amid continued rate hikes by the Federal Reserve.
So what should investors do with Carnival stock?
Is Carnival a “sell”?
Analysts’ outlook on Carnival’s financials has been dimming since the company forecast last month another net loss for the third quarter. On average, the cruise line operator is expected to post a loss of $0.30 in the fourth quarter, worse than the $0.04 loss analysts had forecast a month earlier, according to data published on the Wall Street Journal website.
But what to do depends on who you ask. Four out of 24 analysts who track the stock say sell, according to data published on the Wall Street Journal website. Eleven recommend investors hold on to their stake, while eight analysts have either a “buy” or “overweight” rating on the stock, meaning investors should add to their holdings.
Credit Suisse analyst Benjamin Chaiken is among those who expect the stock to outperform the market. Still, he said in late June that “estimates across the board should come down, partially on higher costs and lower near-term pricing.”
He reduced his price target for the stock to $29 from $38 after second quarter earnings were released last month.
Refinitiv gave Carnival the lowest score of 1, citing the company’s negative outlook. That’s significantly more bearish than the hotels & cruise lines industry average score of 5.9. Royal Caribbean scored 2, while Norwegian was 3.
Morgan Stanley’s bear case for Carnival
The investment bank’s analysts cut their price target for Carnival by almost half to $7 in a note June 29, as they predicted a third year of losses for the company this year. Ready to open an account or consider a new broker? Find the best online brokers for your needs. Or check out fees and features in our comparison table to find a better deal today.
Since then, the investment has also released a survey showing travel agents turning more negative in their outlook on the cruise sector, despite the removal of the mandatory Covid test.
“An increasing number of agents cite flight cancellation / high airfares, ship crewing issues, concerns over the economy, the weak stock market and the large amount of new inventory as headwinds,” Morgan Stanley analysts said.
The bank’s analysts remain cautious on the cruise sector due to uncertain demand outlook, high industry capacity growth, cost pressures and elevated debt levels that would require further equity raises.
Morgan Stanley expressed concern that liquidity for Carnival could quickly shrink should the high yield market closes and/or if there’s a demand shock that causes trip cancellations or weak bookings. The company is particularly vulnerable when funding dries up, given that it has $4 billion of debt coming due in the next 18 months, and $5 billion of its cash is customer cash, the analysts said.
At the time of publication, markets editor Luzi Ann Javier doesn’t own any shares in Carnival Cruises, Royal Caribbean or Norwegian Cruise Line
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