Things Look Grim For Carnival Corporation Plc (NYSE:CCL) After Today's Downgrade
One thing we could say about the analysts on Carnival Corporation Plc ( NYSE:CCL ) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business.
Following the latest downgrade, the 15 analysts covering Carnival Corporation provided consensus estimates of US$7.3b revenue in 2020, which would reflect a substantial 65% decline on its sales over the past 12 months. Following this downgrade, earnings are now expected to tip over into loss-making territory, with the analysts forecasting losses of US$8.91 per share in 2020. Yet before this consensus update, the analysts had been forecasting revenues of US$10b and losses of US$4.36 per share in 2020. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
View our latest analysis for Carnival Corporation
The consensus price target fell 11% to US$17.11, implicitly signalling that lower earnings per share are a leading indicator for Carnival Corporation's valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Carnival Corporation at US$30.00 per share, while the most bearish prices it at US$5.00. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how analysts think this business will perform. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast revenue decline of 65%, a significant reduction from annual growth of 6.4% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 17% annually for the foreseeable future. It's pretty clear that Carnival Corporation's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Carnival Corporation. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of Carnival Corporation.
Worse, Carnival Corporation is labouring under a substantial debt burden, which - if today's forecasts prove accurate - the forecast downgrade could potentially exacerbate. See why we're concerned about Carnival Corporation's balance sheet by visiting our risks dashboard for free on our platform here.
You can also see our analysis of Carnival Corporation's Board and CEO remuneration and experience, and whether company insiders have been buying stock.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.
