Carnival (CCL) received negative analyst actions from both Berenberg and Wedbush, including an investment-rating downgrade to sell from hold from Berenberg, after the cruise and travel company cut its 2019 guidance Thursday and forecast fiscal Q4 earnings per share below analysts’ expectations despite a Q3 beat.
Along with reducing its investment rating on the stock to sell from hold, Berenberg cut its price target on Carnival’s shares to $38 each from $48.
Wedbush, meanwhile, lowered its price target on the stock to $43 each from $50. Wedbush kept its investment rating on the shares at neutral.
Carnival’s shares closed Thursday’s session at $43.95, down 8.6% on the day amid disappointment over the company’s guidance. The shares slipped another 1.8% to $43.18 in recent Friday pre-market trading.
In a note to clients, Berenberg said Carnival’s Q3 results “have heightened our fears,” adding that with the shares down by just 2% from when it downgraded the stock to hold from buy, “we believe the time is right to take the shares to sell.”
Berenberg cited a weaker operational outlook and higher-than-expected fuel costs as the firm reduced its EPS estimate for Carnival for 2020 by 11%.
Wedbush, meanwhile, said in its note to clients “given the significant underperformance of CCL shares over the past nine months (since the company’s 4Q report) we have wanted to get more constructive on the name, and yet the company’s outsized exposure to continental European passengers and the resulting disappointing yield results/guidance have made the CCL 2019/2020 story a tricky one.”
Wedbush added: “Thursday’s less positive commentary on North America was also somewhat of a surprise, and leads us to believe that the company is also underperforming in the critical Caribbean and Alaskan markets.”
Wedbush said it continues “to believe that the cruise space is significantly undervalued in aggregate,” but sees rival cruise operators Royal Caribbean Cruises (RCL) and Norwegian Cruise Line Holdings (NCLH) as representing “better value even following their outperformance this year.”
Thursday, Carnival reported its fiscal Q3 ended Aug. 31 had adjusted earnings per share of $2.63 up from the year-earlier quarter’s $2.36 and above analysts’ mean estimate according to Capital IQ of $2.54. Revenue totaled $6.53 billion, up from the year-earlier period’s $5.84 billion, and surpassing analysts’ mean estimate of $6.14 billion.
However, for Q4, the company said it expects adjusted EPS of $0.46 to $0.50, down from the year-earlier quarter’s $0.70 and below analysts’ mean estimate at the time the guidance was released of $0.66.
Carnival also said it now expects 2019 adjusted EPS of $4.23 to $4.27, down from the guidance it gave in June for $4.25 to $4.35. Most of the new guidance range, which the company noted reflects recent increases in fuel prices, is below the year-earlier result of $4.26.
Looking further ahead, Carnival said while its advanced bookings for the first half of 2020 are ahead of the prior year at prices that are in line with 2019, “since June, both booking volumes and prices for the first half of next year have been running lower than the prior year.”