The shares of cruise operator Carnival (NYSE:CCL) are sinking 13% in pre-market today after the company announced a new, $1 billion stock offering. Carnival disclosed the news yesterday after the market closed. Other cruise stocks are also sinking in the wake of Carnival’s move, with Royal Caribbean (NYSE:RCL) retreating almost 10% to $35.33 and Norwegian Cruise Line (NYSE:NCLH) also slumping about 10% to $12.30.
As of the end of last quarter, Carnival had $7.2 billion of cash and a huge $36.4 billion of debt. Additionally, its current ratio was 0.64, indicating that it may have difficulty paying its debt over the next year. The funds raised by Carnival through its stock offering will obviously help it afford its debt payments over the next 12 months.
Carnival and other cruise stocks have performed very badly this year. According to Seeking Alpha, worries about the cruise operators’ rising expenses and steep debt have put downward pressure on their stocks. Additionally, Carnival noted in June that the cruise sector was still being hurt by anti-Covid-19 restrictions.
Although the Centers for Disease Control and Prevention (CDC) ended its Covid-19 Program on July 18, today’s news is clearly overshadowing that positive catalyst.
Cruise Stocks: Two Analysts Issued Bearish Notes on CCL Stock
In recent weeks, two analysts at major firms have issued pessimistic notes about Carnival. On July 4, HSBC’s Ali Naqvi reported that Carnival had achieved “positive bookings momentum” in the second quarter, but he warned that it was premature to say that the cruise operator had reached a positive turning point. Naqvi kept a “reduce” rating and a $7.70 price target on the name.
An even more bearish note was released by Morgan Stanley’s Jamie Rollo on June 29. Calling the company’s Q2 results and guidance “weak,” Rollo slashed his price target on CCL stock to $7 from $13. He maintained an “underweight” rating on the shares.
Moreover, the analyst warned that, in a negative scenario, CCL stock could become worthless. Rollo believes that if many of Carnival’s customers withdraw their deposits and “the high-yield market closes,” Carnival’s “liquidity could quickly shrink,” The Fly reported.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.