Why Carnival Corporation Has Fallen Today

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What happened

Actions of Carnival (NYSE: CCL) (NYSE: CUK) fell 2% as of 1:39 a.m. EDT Monday after the cruise line was hit by downgrade from analysts of Citigroup.

Citi downgraded its rating on Carnival stock from Buy to neutral and lowered its price target to $ 24.50.

Image source: Getty Images.

So what

Citi’s lower price target implies that there is still about a 12% rise in Carnival stock – that’s the good news. The bad news is that the cut too implies a 28% drop in analyst’s estimate of Carnival’s total value.

As Citi explains in a note covered by The Fly today, it remains of the view that the cruise industry as a whole is on the road to recovery. But, according to the note, “Carnival has experienced slower revenue and profit growth over the past 10 years” than its rival Norwegian Cruise Line Holdings (NYSE: NCLH), and Citi sees no reason to believe that this dynamic will reverse as the cruise industry emerges from the recession.

On the contrary, Citi fears that Carnival’s decision to sell some of its “older, less efficient ships” to cut costs when cruise lines were banned from cruising, combined with the fact that it has fewer new ships on order. , “will limit his income recovery compared to Norwegian.”

Now what

Unsurprisingly then, given that the analyst continues to believe that cruise lines in general are recovering, Citi says Norwegian Cruise “will offer more attractive returns to shareholders compared to Carnival.” And so, at the same time as the banker downgrades Carnival stock, Citi launches Norwegian Cruise stock coverage with a buy note.

And I have to say – I agree with Citigroup on this one. Although personally I am not yet convinced that all cruise lines are worth buying, the fact remains: Based on consensus forecasts, Norwegian Cruise stock is currently selling for just 36.4 times forward earnings, compared to over 95 times earnings for Carnival. Norwegian also has significantly less debt than its rival – less than $ 10 billion net in cash, compared to almost $ 25 billion in net debt for Carnival – giving Norwegian more leeway during the recovery.

All things considered, Norwegian appears to be a safer port in the storm of cruise stocks.

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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Rich Smith has no position in the stocks mentioned. The Motley Fool recommends carnival. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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