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Why one analyst thinks Carnival stock could go to $0

Why one analyst thinks Carnival stock could go to $0



Cruise ships face Omicron outbreaks at seaReplayMore Videos ... (16 Videos)Cruise ships face Omicron outbreaks at seaSchwab top strategist: Consumers 'much better prepared' for downturn compared to Great Recession'Pay rent or buy some food': Millions of renters unsure if they can make rentShrinking UK economy could lead to a recession amid 40-year high inflationPowell: Recession after rate hikes certainly a possibilityWarren to Powell: Don't drive this economy off a cliffAnalyst: Gas tax holiday 'won't change people's behavior'Beyoncé's single dubbed anthem for 'Great Resignation'Gary Cohn: Fed was late on interest rate hikesExecutives torn on recession risk as fears grow for global economyThe Fed anticipates more rate increases after announcing biggest hike in 28 yearsWhat the interest rate hike means for youRealtor.com chief economist shares her advice for homebuyers and sellersHe predicted US inflation would rise. Hear what he thinks about a recessionHere's what the US economy can expect if a recession hits Former labor secretary on how Biden administration can combat inflationNew York (CNN Business)Cruise giant Carnival was hit hard during the worst of the pandemic. Now, a top Wall Street analyst has issued a dire potential outlook for the company in the case of recession.

Morgan Stanley's Jamie Rollo outlined a worse-case scenario: Carnival stock could fall to $0 in the event of a global economic downturn. "If there is a demand shock that causes trip cancellations or weak bookings ... liquidity could quickly shrink," Rollo wrote in a report Wednesday. Carnival was not immediately available for comment.Where to hide in a bear market? Soda, peanut butter and tissues 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 bring down its debt levels, which "could become very challenging," he said.Shares of Carnival (CCL) plunged more than 15% Wednesday after Rollo's report, and rivals Royal Caribbean (RCL) and Norwegian (NCLH) each fell more than 10% as well.Read MoreCarnival stock is not far from a 52-week low, after plummeting from $50 a share pre-pandemic to about $8.70 currently. That's still above Rollo's new base-case target price of $7, which assumes that revenue and capacity increase from 2019 levels.The company released its second-quarter financial results last week, which included a loss of $1.8 billion. But sales rose 50% compared to the prior quarter, and the company also stressed that it has ample cash on hand with $7.5 billion of liquidity on its balance sheet. "While not recession-proof, our business has proven to be recession-resilient time and again," CEO Arnold Donald said during the company's earnings call. Is the summer vacation boom over before it even began?"As we have seen in prior 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 spending on things," Donald added, adding that "there is pent-up demand for travel globally which is a powerful tailwind."David Bernstein, Carnival's chief financial officer, added during the call that "not every recession is the same.""We are currently in a very strong labor market. And given that, if people have jobs and they feel comfortable in their jobs, they're likely to need a vacation" Bernstein said. "And remember, vacations are no longer a luxury, they're a necessity in today's world."


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