Morgan Stanley warned that Carnival shares could lose all of their value if the economy falls into a recession, after another major Wall Street firm warned that weak demand and higher costs could sink industry profits.


Carnival's stock is down more than 50% so far this year and could face more challenges in the future.

Daniel Slim/AFP via Getty Images

Morgan Stanley warned that the company could face heavy losses due to weakened demand and higher costs.

The investment bank slashed its price target on the stock to $7 per share from $13, one of the lowest forecasts on Wall Street, and warned that Carnival's earnings will take a hit in the years to come.

Morgan Stanley slashed full-year estimates for the company from a $1 billion profit to a $900 million loss due to weaker than expected occupancies, weak pricing, and higher fuel costs.

Carnival's stock could fall to $0 per share and lose all of its value if the economy falls into a recession and the company faces another "demand shock."

At the end of the second quarter, Carnival had $7.5 billion in cash and had over $35 billion in debt.

Norwegian Cruise Line and Royal Caribbean lost 10% of their value on Wednesday.

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Even though cruise lines are getting ready for a busy summer season, Morgan Stanley is still gloomy. Arnold Donald, Carnival's CEO, said last week that the company expects to make more money in the third quarter than in the second. Many major operators took on large amounts of debt to keep their business afloat, like Carnival, which took a big hit from the H1N1 epidemic in 2020 and had to halt cruises for a large part of the year. High inflation and surging oil prices have slowed the return to full capacity of cruise lines.

Crucial Quote:

Management said on the earnings call last week that the Covid-19 pandemic, surging inflation and higher fuel prices are having a material impact on the business. Earnings are expected to improve once cruise operations return to historical levels by next year, but the company still expects to post a net loss for the rest of the year.

What To Watch For:

The company posted strong second quarter earnings results last Friday, with revenue and cruise bookings both increasing from earlier in the year. Customer deposits jumped to over $5 billion and the number of passengers on Carnival's cruise ships increased. After several firms slashed their price targets for the stock, shares fell once more. Carnival's stock is down more than 50% this year, compared to the S&P 500's decline.

Consumer confidence is hitting a new low and the recession fears are still going strong.

The price of oil will remain elevated through the summer.

How to invest during a recession is a topic discussed by experts.