Is Highly Leveraged Carnival Stock Best Avoided For The Near-Term?

CCL: Carnival logo
CCL
Carnival

Carnival (NYSE:CCL), the largest cruise line operator, has seen its stock price decline by 19% over the last month (about 21 trading days) considerably underperforming the S&P 500, which was down by about 6% over the same period. While the company is witnessing a strong rebound in demand, with occupancy levels picking up, a couple of factors have been weighing the stock down. Firstly, the broader markets have taken a hit in recent weeks, amid concerns about a U.S. recession in 2023.  The Federal Reserve is also continuing with its hawkish stance, despite the moderating pace of inflation. This is a concern for Carnival, given that it remains one of the most indebted players in the leisure cruising business with over $30 billion in long-term debt. Moreover, Carnival’s Q4 FY’22 results were also somewhat mixed. Although the company’s net losses narrowed versus last year with occupancy rates picking up, revenues fell short of expectations. Moreover, the company’s bottom line was pressured by high fuel costs and foreign exchange headwinds.

However, now that CCL stock has seen a decline of about 20% 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 only a 56% chance of a rise in CCL stock over the next month. There were 136 instances in the last 10 years when Carnival (CCL) stock saw a trailing 21-day drop of 19% or more. Now 76 of those instances resulted in CCL stock rising over the subsequent one-month period (21 trading days). This historical pattern reflects 76 out of 136, or about a 56% chance of a rise in Carnival stock over the next month. See our analysis on Carnival Chance of Rise for more details.

Calculation of ‘Event Probability’ and ‘Chance of Rise’ using last ten years’ data

  • After moving -3% or more over five days, the stock rose in the next five days on 49% of the occasions.
  • After moving -5% or more over ten days, the stock rose in the next ten days on 54% of the occasions.
  • After moving -19% or more over a twenty-one-day period, the stock rose in the next twenty-one days on 56% of the occasions.
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The challenging macro environment, Carnival’s high leverage, and not very high probability of rising based on historical data indicate that Carnival stock may not be a very good bet for the near term.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Jan 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 CCL Return 0% 0% -85%
 S&P 500 Return 0% 0% 71%
 Trefis Multi-Strategy Portfolio 0% 0% 215%

[1] Month-to-date and year-to-date as of 1/1/2023
[2] Cumulative total returns since the end of 2016

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