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Carnival Stock: All Aboard as Stock Sails Higher
Stock Analysis & Ideas

Carnival Stock: All Aboard as Stock Sails Higher

Story Highlights

Choppy waters have prevailed in the cruise-line market since the onset of COVID-19 a couple of years ago. However, Carnival’s return to form is evident as occupancy rates rise, and the vast majority of Carnival’s fleet is finally back in service.

Headquartered in Miami, Carnival (CCL) provides cruises in multiple world regions. I am bullish on the stock.

If the onset of COVID-19 hit any sector the hardest, it would probably have been the cruise-ship market. For quite a while, people were afraid to leave their house, not to mention board a crowded ship. Even if Carnival wanted to put its fleet in service, lockdowns and restrictions from the Centers for Disease Control (CDC) sometimes prevented this.

Fast-forward to mid-2022, and the COVID-19 lockdowns in America have largely been lifted while regulatory restrictions on cruise lines have eased. The pandemic certainly isn’t over, but at least Carnival has more leeway to operate and, therefore, earn revenue and even build back toward a profitable profile.

As we’ll see, profits are still elusive but at least Carnival is improving in its top- and bottom-line results. Moreover, a rising occupancy rate on Carnival’s ships provides evidence that Carnival stock, despite the ongoing challenges, isn’t a sinking ship.

On TipRanks, CCL scores a 3 out of 10 on the Smart Score spectrum. This indicates a potential for the stock to underperform the broader market.

Trying to Stay Afloat

On the morning of June 24, 2022, Carnival stock was up 9% on unusually heavy trading volume. Sure, Carnival stock is sometimes a fast mover, but this magnitude of price action was notable.

It was a much-needed confidence booster for the shareholders, no doubt, as Carnival stock is still far below its pre-pandemic $50 price level. Indeed, prior to June 24, it looked like Carnival stock was heading back toward its 52-week low of $8.70.

Perhaps a bounce-back was overdue as Carnival’s operations seemed to be recovering in June. For instance, the company proudly announced that its fleet had returned to guest operations from New York City for the first time in more than two years, and furthermore had restarted in all 14 of Carnival’s U.S. homeports.

There was also progress abroad in the month of June as Princess Cruises’ Coral Princess (part of Carnival’s international fleet) commenced its inaugural season in Brisbane, Australia. Marking this moment, Dan Russell, director and general manager of Clean Cruising, observed, “Our clients have been eagerly waiting for a cruise ship to be homeported in Brisbane, and to see Coral Princess here today is another great step forward for the cruise industry.”

In some ways, then, it could be argued that Carnival is staying afloat despite the challenges of inflation, the possibility of a looming economic recession, lingering fears of COVID-19, and now monkeypox as well. Still, some investors might express concerns that Carnival’s efforts to entice travelers could dent the company’s financial results. For example, Carnival offered cruise fare discounts of up to 50% in June.

Back on Board

Obviously, Carnival has had to overcome a slew of problems this year. The billion-dollar question, then, is whether these issues, along with Carnival’s fare discounts, have wreaked havoc on the company’s financials.

Certainly, that question was top-of-mind for Carnival’s investors as the company released its second-quarter 2022 “business update” (i.e., financial results). First, the bad news. It’s no secret that Carnival isn’t currently profitable, and as it turned out, the company reported a quarterly net earnings loss of $1.834 billion. However, this is an improvement over the prior-year quarter’s $2.074 billion loss, so at least Carnival’s bottom-line results seem to be heading in the right direction.

Glancing at the company’s top-line results, Carnival posted Q2 2022 revenue of $2.401 billion, which is a vast improvement over the year-earlier quarter’s $50 billion. This is encouraging, for sure – it remains to be seen, though, whether any customer discounts offered in June will negatively impact Carnivals’ current-quarter revenue.

It should also be noted that Carnival’s revenue “increased by nearly 50% in the second quarter of 2022 compared to first quarter 2022,” according to the press release. Additionally, Carnival touted its balance-sheet strength by stating that the company’s cash from operations turned positive during 2022’s second quarter.

So far, we’re painting a bright picture of Carnival’s finances. That picture is marred by the company’s lack of profitability, but the name of the game here is improvement, not perfection.

From an operational standpoint, we can observe that 91% of Carnival’s capacity is in guest-cruise operation. Plus, Carnival’s guest occupancy in Q2 2022 was 69%, versus 54% during the previous quarter. On top of all that, Carnival’s booking volumes for all future sailings during 2022’s second quarter nearly doubled the booking volumes from the year’s first quarter. As the company explained, “these were its best quarterly booking volumes since the beginning of the pandemic.”

Wall Street’s Take

According to TipRanks’ analyst rating consensus, CCL is a Hold, based on two Buy, five Hold, and four Sell ratings. The average Carnival price target is $18.25, implying 68.2% upside potential.

The Takeaway

Carnival’s comeback is still in progress, but at least there’s improvement according to a number of financial and operational metrics. Stock traders certainly seemed pleased with Carnival’s quarterly results as they sent the share price higher.

None of this means that Carnival stock will return to pre-pandemic levels anytime soon. Nonetheless, adventurous investors can ride the choppy waters, if they dare, in search of potential profits with Carnival stock.

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