What’s Next For Carnival Stock After Weaker Than Expected Third Quarter?

CCL: Carnival logo
CCL
Carnival

Carnival (NYSE:CCL), the largest cruise line operator, has seen its stock price decline by close to 33% over the last month (about 21 trading days) considerably underperforming the S&P 500, which was down by about 9% over the same period. While the broader markets have been hit by the Fed’s continued rate hikes and concerns about the U.S. economy, Carnival stock took a bigger hit after its Q3 FY’22 (quarter ended August) revenues fell short of estimates with net loss also coming in much wider than expected, at about $0.65 per share compared to a consensus of about $0.10 per share. Now Carnival is actually witnessing pretty strong demand growth following the easing of Covid-19 restrictions. Over Q3 occupancy stood at a solid 84% and revenue grew by around 80% sequentially and by almost 8x year-over-year. The company also said that booking volumes for its future sailings were meaningfully higher than pre-pandemic levels. While the sell-off might seem like an overreaction given the improving demand, investors are focusing a lot on Carnival’s profitability and cashflows. The company is one of the most indebted players in the cruising business, with total debt standing at $34 billion as of the end of the last quarter. Rising interest rates and a slower-than-expected recovery in profitability could make it difficult for the company to pay down debt.

However, now that CCL stock has seen a decline of about 33% 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 monthOut of 37 instances in the last 10 years that CCL stock saw a twenty-one-day decline of 33% or more, 20 of them resulted in CCL stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 20 out of 37, or about a 54% 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 -4% or more over five days, the stock rose in the next five days on 52% of the occasions.
  • After moving -24% or more over ten days, the stock rose in the next ten days on 24% of the occasions.
  • After moving -33% or more over a twenty-one-day period, the stock rose in the next twenty-one days on 54% of the occasions.
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The tough macro environment, Carnival’s high leverage, and low probability of rising based on historical data, indicate that Carnival stock may not be a very good bet for the near term.

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Returns Oct 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 CCL Return -4% -66% -87%
 S&P 500 Return 2% -24% 63%
 Trefis Multi-Strategy Portfolio 3% -24% 200%

[1] Month-to-date and year-to-date as of 10/9/2022
[2] Cumulative total returns since the end of 2016

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