Carnival Gets Price Target Cut On Weak Continental Europe Demand

Carnival plc CCL received a price target cut on Monday due to lower net revenue yield guidance. The company reported earnings on June 20.

The Analyst

Bank of America analyst David Holmes reiterates a Neutral rating and lowered his price target to $53.

The Thesis

Holmes says the recipe of earnings growth is changing for Carnival. The company continues to target a double-digit earnings growth rate, but this growth is now more driven by capacity additions than net revenue yield growth.

“We think investors view this formula of growth as lower quality and therefore we believe the shares will likely continue to be dictated by net revenue yield momentum,” Holmes wrote in a note.

Holmes said continental Europe continues to weigh on net revenue yield, where an elevated supply and a weak demand continue to persist. The analyst lowered his FY2019 estimates by 5.5% due to Carnival’s lower net revenue yield guidance.

“We view valuation as supportive but we think valuation alone is not enough for shares to materially recover, we think an inflection in net revenue yield growth is required that does not appear forthcoming,” Holmes said.

Price Action

Carnival shares traded down 1.24% to $46.03 at time of publication.

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