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TheStreet Open House

Analyst Downgrades Sink Carnival (CCL) Shares for Second Day

NEW YORK (TheStreet) - After closing 7.56% lower Tuesday, Carnival Corporation  (CCL) continued its downward trajectory this morning, weighed down by a slew of post-earnings analyst downgrades.

Morgan Stanley downgraded Carnival to underweight from its equal-weight rating and JPMorgan decreased its price target to $32 from $34 but maintained a neutral rating. Susquehanna lowered its price target to $40 from $43.

Though its third-quarter revenue of $4.7 billion for the period ended August 31 was largely in line with expectations, Carnival expects fourth-quarter revenue to be 3% to 4% lower compared to the year-ago quarter. The company forecasts higher fuel prices will cut full-year 2013 earnings by 4 cents a share.

CEO Mickey Arison admitted at a press conference yesterday it would take Carnival's Costa brand three years to recover from the 2012 Concordia shipwreck.

Chief Operating Officer Howard S. Frank said in a conference call that Costa's situation is improving albeit slowly. "We are forecasting continued revenue yield increases in 2014 for Costa despite what is still a very challenging European economic environment," he said.

Carnival shares are down 5.12% to $32.77 as of 11 a.m. EST and 7.91 million shares have changed hands, exceeding its one-month daily average of 3.96 million. Overall, Carnival was lagging the S&P 500 which was down 0.05%.

TheStreet Ratings team rates Carnival Corporation as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate Carnival Corporation a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its increase in net income, reasonable valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including poor profit margins, a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Hotels, Restaurants & Leisure industry. The net income increased by 192.8% when compared to the same quarter one year prior, rising from $14 million to $41 million.
  • The current debt-to-equity ratio, 0.42, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.22 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • In its most recent trading session, CCL has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • The gross profit margin for Carnival Corporation is currently lower than what is desirable, coming in at 28.05%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 1.17% significantly trails the industry average.

Written by Keris Alison Lahiff.

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