Carnival Plunges as Morgan Stanley Says Another Demand Shock Could Send Shares to $0

June 29, 2022 7:36 AM EDT
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Morgan Stanley analyst Jamie Rollo has remained cautious on the Underweight-rated Carnival Corp (NYSE: CCL) shares after another “chunky forecast cut.”

The analyst slashed the price target to a new Street-low of $7.00 per share from $13.00 to reflect the lowered FY22e EBITDA guidance and mirroring “weaker than expected occupancies, weakening pricing, elevated unit costs and higher fuel costs.”

The analyst also slashed the 2H22 forecast for revenue by 15% on pressures led by a later-than-expected return to a 100% resumption.

Rollo also introduced a new bear case of $0 in case a new major demand shock is to materialize.

“If the high yield market closes, and/or if there is a demand shock that causes trip cancellations or weak bookings (and hence customer deposit outflows), liquidity could quickly shrink. Even then, leverage looks unsustainably high we think, with net debt remaining >$30bn for the foreseeable future,nearly triple its pre Covid level. We think this needs to come down to under 4xFY23, to ~$20bn or so, which implies a ~$12bn equity raise. This is similar to CCL's market cap, so could require a material,and therefore likely very dilutive, discount. If its equity value drops much further, it could become very challenging to raise this much,” the analyst concluded.

By Senad Karaahmetovic

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Morgan Stanley, Senad Karaahmetovic