Dual-listed cruises operator Carnival PLC (LON:CCL) (NYSE:CCL) drifted lower today after broker Berenberg cut its rating for the stock a day ahead of the firm’s fourth quarter earnings update.
Berenberg lowered its recommendation on Carnival to hold from buy and reduced its price targets to £40 and $50, implying 4% downside.
In early morning trading, Carnival shares on London’s FTSE 100 index were nearly 2%, or 77p lower at 3,991p.
In a note to clients, analysts at the German brokerage said: “We remain positive about the outlook for yields in the cruise industry going into 2017.
“However, recent trends in the cost of fuel, a further strengthening of the dollar and an increase in interest rates create headwinds that we think will be tough for Carnival to offset.”
They expect Carnival’s yield growth to remain strong on a constant currency basis, improving by around 3% on 2016.
However, further appreciation by the US dollar since the company unveiled its third-quarter results at the end of September will mean reported yields are likely to be under 1%, the analysts added.
In addition, they noted that Carnival has already flagged that higher fuel costs will be a drag on earnings next year.
The analysts said: “With fuel costs guided to be $926mln in 2016, this implied c$1.1bn at the time.
"We believe that this cost has risen by a further $150mln, with bunker fuel up by around c20% since the third quarter results.”