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Analysts take stock of Concordia impact as CCL shares sink

Carnival shares were ‘clobbered’—as MarketWatch put it—by the Costa Concordia wreck in the first New York Stock Exchange trading session following Friday night’s ship disaster. CCL shares at midday had plunged more than 14% to $29.41, a price that skated just above the 52-week low of $28.52 on Oct. 4.

At midday, 28m Carnival shares had changed hands, far above the average volume of 4.3m shares.

Royal Caribbean was dragged down, too, but not as dramatically. RCL was trading at $27.45, down $1.30 or 4.5%.

On Monday, when the NYSE was closed for the observance of Martin Luther King Jr. Day, J.P. Morgan downgraded Carnival to ‘neutral’ from ‘overweight’ and cut its price target to $30 from $38.

MarketWatch said J.P. Morgan analyst Kevin Milota is concerned about Costa Concordia’s impact on an already weak consumer environment, especially in Europe. He believes discounting will follow.

The Concordia accident ‘could not have happened at a worse time,’ Wells Fargo Securities told investors in a note.

The brokerage cited potential renewed consumer spending uncertainty following the sovereign debt downgrades of several European countries on Friday and the subsequent weekend credit downgrade of the eurozone rescue fund, as well as the start of wave season, which generates 30% to 35% of annual bookings.

Prior to the weekend, industry sources had indicated a solid start to the wave, including firming European fundamentals, said Wells Fargo analyst Tim Conder. Now he expects a negative impact on Costa’s bookings, followed by Carnival’s collectively and ‘to a modest extent,’ the industry’s.

But Conder predicts that long term, the impact of the Concordia accident to Carnival and the industry ‘will likely be negligible as consumers look beyond the tragic “one-off” nature of the event.’

For now, Wells Fargo held its $2.68 earnings per share estimate for Carnival in 2012 but assumes a possible 20- to 25-cent Concordia impact. The brokerage reiterated its ‘outperform’ rating.

UBS Investment Research said the early wave season timing of Concordia incident could be ‘particularly disruptive’ and expects some impact on bookings across all lines.

However, UBS analyst Robin Farley said most of the February quarter is in the penalty period (when customers would forfeit some funds for canceling) so the first quarter will likely not see major cancellations, though Q2 could.

For Carnival, UBS estimates an 11-cent to 12-cent EPS impact for Concordia loss of service—in line with guidance—plus an additional one-time 2012 EPS hit of 9 cents for expenses related to insurance deductibles and other one-off costs.

UBS lowered its 2012 EPS estimate for CCL to $2.55, from $2.58 on Monday and $2.75 previously, and said it is reviewing its estimates for forward bookings impact.

The brokerage maintained its ‘buy’ rating on Carnival with a price target of $38.

Concordia represents about 1.5% of Carnival capacity, and Costa as a whole about 15%, according to William Blair & Co., which noted the brand struggled over the past year with Middle East/North Africa redeployments and Italy’s deteriorating economic environment.

The brokerage said it will closely monitor cruise pricing this week, and advised investors that CCL stock would ‘undoubtedly take a hit on Tuesday.’

William Blair shaved 16 cents off its 2012 EPS estimate for Carnival to $2.51 and cut its 2013 estimate by 20 cents, to $3, while affirming its ‘outperform’ rating.

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