Carnival (NYSE:CCL), the largest cruise line operator, has seen its stock price decline by close to 41% over the last month, considerably underperforming the S&P 500, which was down by about 10% over the same period. Although the Covid-19 pandemic-related headwinds have been easing for travel and leisure stocks with demand picking up, there is another set of challenges on the horizon for cruise line players such as Carnival. Oil prices have been surging, with Brent crude trading at roughly $120 per barrel currently, up by almost 50% year-to-date. Fuel costs amounted to about 9% of Carnival’s operating expenses in 2019 when Brent crude was trading at levels of under $60 per barrel, and it’s very likely that sustained high oil prices could adversely impact Carnival’s profitability. There are also concerns about the U.S. economy slipping into a recession as the Federal Reserve embarks on a path of aggressive rate hikes to tame surging inflation. On Wednesday, the central bank recently raised its benchmark rates by 0.75%, its highest increase since 1994. U.S consumer sentiment has also slumped to record lows as surging prices take a toll on household finances and this could impact companies such as Carnival who are dependent on discretionary spending. . An economic downturn could weigh down Carnival stock, which remains one of the most heavily indebted players in the Cruising industry, with total debt standing at close to $33 billion.
However, now that CCL stock has seen a decline of about 40% over the last month, will it continue its downward trajectory in the near term, or is a recovery imminent? Going by historical performance, there is a roughly equal chance of a rise or decline in CCL stock over the next month. Out of 23 instances in the last 10 years that CCL stock saw a twenty-one-day decline of 40% or more, 12 of them resulted in CCL stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 12 out of 23, or about a 52% chance of a rise in CCL stock over the coming month, implying that the stock may not be a particularly attractive buy for the near term. See our analysis on Carnival Chance of A Rise for more details.
Calculation of ‘Event Probability’ and ‘Chance of Rise’ using last ten years’ data
- After moving -25% or more over five days, the stock rose in the next five days on 47% of the occasions.
- After moving -38% or more over ten days, the stock rose in the next ten days on 20% of the occasions.
- After moving -41% or more over a twenty-one-day period, the stock rose in the next twenty-one days on 52% of the occasions.
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The tough macro environment, Carnival’s high leverage, and low probability of rise based on historical data indicate that Carnival stock may not be a very good bet for the near term.