Carnival Earnings Preview: Why Was the Rating Cut for CCL?

Shares of Carnival Corp (NYSE:CCL) are down more than 2% this week after the stock had its rating cut by Deutsche Bank AG analyst Richard Carter. Carnival is set to release first-quarter earnings on Friday. Carnival Earnings Preview: Why Was the Rating Cut for CCL?

The analyst lowered CCL’s stock rating from “Buy” to “Hold,” but increased Carnival’s price target from $48 to $51. Carter said that CCL stock had only an 8% upside from its previous share price of $48, (where it was trading prior to the rating downgrade).

Carter believes Carnival will see negative results from currency exchange rates and believes management may even lower guidance due to a weakening euro. For the quarter, Carter lowered his predicted earnings per share from 9 cents to 7 cents, which is still better than the flat earnings that Carnival posted for the same quarter in 2014.

Looking further out, Carter lowered his full-year estimate from $2.67 per share to $2.29 per share.

The rest of Wall Street is a little more positive on CCL stock, forecasting earnings per share of 10 cents for the quarter and $2.52 per share for the full year. Analysts are expecting quarterly revenue at nearly $3.6 billion, but down slightly from the same quarter a year ago.

Investors will likely be happy on Friday if CCL can hit its earnings estimates and the stock will likely recover from Monday’s decline. But for the long run, CCL’s revenue is expected to be flat this quarter and essentially maintain that trend for the remainder of this year.

The cruise line industry as a whole has been plagued the last few years with all sorts of issues — illnesses overtaking entire ships, sudden breakdowns that leave passengers stranded, or just bottoming out and tipping over. The bad press has hurt Carnival and its competitors’ revenue and earnings because a cruise doesn’t sound like the best vacation anymore.

If and when the bad publicity is forgotten, bearing that nothing new happens, Carnival should be able to recover and begin showing strong revenue and earnings growth again. The problem is knowing when that full recovery — and vacationers forgetting the past — will take place.

As of this writing, Matt Thalman held no position in any of the aforementioned securities. Follow him on twitter @mthalman5513.  

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