Argus: Carnival's Near-Term Outlook Is Weak

The near-term doesn't hold out much promise for Carnival Corp CCL, according to an analyst at Argus.

The Analyst

John Staszak downgraded shares of Carnival from Buy to Hold.

The Thesis

Carnival is in for a turbulent near-term due to the challenges posed by "difficult prior-year comparisons, unimpressive advance bookings, rising fuel costs, and foreign exchange headwinds," Staszak said in a Friday note. This is despite the analyst holding a favorable view of the cruise industry and Carnival's position as a near-term market leader.

Staszak noted that in late June, the company reported above-consensus Q2 earnings per share, helped by higher-than-expected net yields, partly offset by higher fuel costs and forex headwinds. However, the company reduced its FY2018 EPS guidance from $4.20-$4.40 to $4.15-$4.25.

Citing the reduced guidance, Argus lowered its FY2018 EPS estimate from $4.50 to $4.20 and FY2019 estimate from $5.50 to $5.10. The reduced estimates were above consensus estimates, Argus said.

"Based on these factors, the stock appears fairly valued at 13.6-times our revised FY18 earnings estimate, below the three-year historical average of 16," Staszak said in the note.

If fuel costs moderate or forex headwinds diminish, he would consider returning to his Buy list.

Argus is bullish on the long-term for Carnival due to its industry leadership and its expectations for increased demand for cruises among affluent baby boomers.

Price Action

Carnival shares have lost about 35 percent in the year-to-date period.

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