Carnival, which is a US-based cruise company and the world’s largest travel leisure company, was the S&P 500’s top loss on June 5. After starting this week on a stronger note by rising on Monday, Carnival opened lower on June 5 and declined to one-year low price levels.
Weakness in upcoming quarters
Cruise operator stocks declined on June 5 following a note from Morgan Stanley warning about weakness in upcoming quarters. According to the report, following the strong performance in May, weakness is expected in the third and fourth quarters for the cruise operators amid concerns about overcapacity, hurricanes, and tropical storms. More cruise ships for limited cruise customers and the upcoming hurricane season in the Atlantic and Caribbean regions are expected to weigh on the cruise industry. Also, strong crude oil prices and the US dollar are expected to weigh on cruise stocks’ performance in the near future.
EPS and lower target prices
Morgan Stanley cut Carnival’s EPS forecast for fiscal 2018 and 2019 by 6% and 11%. The target price decreased from $70 to $63 amid an increase in Carnival’s non-US dollar exposure and expiring fuel hedges. Norwegian Cruise Line and Royal Caribbean Cruises also declined on Tuesday.
Morgan Stanley decreased Royal Caribbean Cruises’ EPS forecast for fiscal 2018 and 2019 by 2%–3%. Royal Caribbean Cruises’ target price was cut by $20 to $110. Carnival declined 4.3% and closed the day at $60.59, while Royal Caribbean Cruises declined 4.1% to $102.15.
Next, we’ll discuss how the US Dollar Index and Treasury yields performed in the early hours on June 6.