NEW YORK – A Deutsche Bank analyst slashed Carnival Corp.’s rating to “Sell” from “Buy” on Thursday and said the cruise operator may need a “strategic shift” to cope with high fuel prices and shipbuilding costs.
“Our analysis suggests that Carnival’s returns will be below its cost of capital over the next few years,” said Deutsche Bank analyst Simon Champion in a note to investors.
A Carnival representative was not immediately available to comment.
The analyst said $100 a barrel oil and rising shipbuilding costs require the industry to focus on improving returns by raising cruise prices and cutting commissions to travel agents. “We believe that fuel surcharging has no material impact on offsetting this pain,” Champion said.
Champion noted, however, that Carnival’s $10 billion in ship orders means that the company cannot make this shift for at least four years. He said the Miami, Fla.-based company is also shifting capacity to Europe, where the growth outlook is getting worse and competition is rising.
The analyst dropped his price target for Carnival to $32 from $52.50.
Carnival shares fell 73 cents to $36.15 in afternoon trading.