Morgan Stanley’s Jamie Rollo outlined a worst-case scenario: Carnival shares could drop to $0 in the event of a global economic downturn.
“If there is a demand shock that causes trip cancellations or underbookings … liquidity can shrink quickly,” Rollo wrote in a report Wednesday. Carnival was not immediately available for comment.
In that bleak assessment, Rollo assumed that revenue would fall about 5% from pre-pandemic levels and that Carnival would need to raise more capital to reduce debt levels, which “could become very challenging,” he said. he.
Carnival shares are not far from a 52-week low, having fallen from $50 a share before the pandemic to around $8.70 currently. That’s still above Rollo’s new base target price of $7, which assumes revenue and capacity grow from 2019 levels.
The company released its second-quarter financial results last week, which included a loss of $1.8 billion. But sales were up 50% compared to the previous quarter, and the company also stressed that it has enough cash on hand with $7.5 billion of liquidity on its balance sheet.
“While not recession-proof, our business has proven to be recession-proof time after time,” CEO Arnold Donald said during the company’s earnings call.
“As we’ve seen in previous cycles, even in downturns, employed people take vacations. And that’s even more true in today’s environment where people prioritize spending on experiences over things,” added Donald, adding that “there is pent-up demand. for worldwide travel, which is a powerful tailwind.”
David Bernstein, Carnival’s chief financial officer, added on the call that “not every recession is the same.”
“We’re currently in a very strong job market. And given that, if people have jobs and are comfortable in their jobs, they’re likely to need vacations,” Bernstein said. “And remember, vacations are no longer a luxury, they are a necessity in today’s world.”
