Carnival Cruise Analyst Stays Bullish Amid 'Brexit Chaos'

Coming off a first-quarter earnings beat Tuesday, Carnival Corp (NYSE: CCL) shares still fell significantly after delivering disappointing second-quarter and FY19 guidance — but one analyst is staying the course on the company.

The Analyst 

Buckingham Research analyst Daniel McKenzie maintained a Buy rating on Carnival and lowered the price target from $68 to $65.

The Thesis

McKenzie said he was looked for an unchanged outlook given strong Caribbean travel demand, but said the source of his error was weaker-than-expected but says the source of his error is tied to weaker than expected European pricing due to "Brexit chaos."

“Our longer-term investment thesis has been tethered to a stronger-for-longer earnings cycle which remains intact, but near-term investors are frustrated with the operators' inability to claw back pricing to offset fuel and FX,” the analyst said in a Wednesday note. 

Although McKenzie said investors are calling into question Carnival’s ability to execute on earnings growth this year, he said earnings in 2019 are growing in the mid-single digits despite an uncertain macro backdrop — and the company expects to return to double-digit earnings growth.

Carnival Cruise shares are off their 52-week high by 24 percent and are unlikely to re-rate higher until the company can execute in the third quarter, McKenzie said: "hence our thesis is pushed out." 

Viking’s widely reported mechanical breakdown is likely not material to CCL, according to Buckingham. 

Price Action

Carnival Corp. shares were down 1.7 percent at $50.83 at the time of publication Wednesday. 

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