After suffering a heavy blow from the COVID-19 crisis, cruise ship operator Carnival (NYSE:CCL) appears to be on a decisive comeback trail. Thanks to a pair of analyst upgrades, shares have been climbing recently, gaining 26% in the past five days. Nevertheless, despite the optimism, investors should remain vigilant due to underappreciated consumer-economy-related headwinds. Therefore, I am neutral on CCL stock.
Wall Street’s Top Experts See Upside Ahead for CCL Stock
At the start of this week, TipRanks reporter Shrilekha Pethe stated that CCL stock gained during Monday’s pre-market trading. Primarily, the enthusiasm centered on top experts upgrading Carnival shares based on a lack of evidence that travel demand was slowing down.
JPMorgan Chase’s Matthew Boss upgraded CCL stock to a Buy from a Hold. As well, the expert increased the price target to $16 from $11. At the time of publication, the move implied upside potential of slightly over 22%. However, the stock is now slightly above the $16 target, demonstrating the broader market enthusiasm over the cruise ship operator.
Notably, Boss remarked that Carnival “has six private destinations around the Caribbean and is leveraging its land-based assets to drive further value creation into 2H25 (the second half of 2025) with a meaningful expansion of Half Moon Cay by building a pier to bring larger ships and improve shoreside guest experience.”
Riding alongside Boss, Bank of America (NYSE:BAC) analyst Nicholas Thomas likewise assessed CCL stock to Buy from Hold. In addition, the expert raised the price target to $19 from an earlier target of $17.
Fundamentally, Thomas anticipated sustained strong demand for cruises based on rational pricing. As well, Carnival’s bookings remain in line with expectations. Overall, circumstances appear quite encouraging for CCL stock. Nevertheless, investors may want to check under the hood before proceeding.
A Possible Hidden Warning Sign in the Latest Jobs Report
Seemingly fueling speculation for CCL stock is the May jobs report. As TipRanks reported, the economy added 339,000 jobs last month, well ahead of the forecast calling for 190,000 jobs. As well, the May print landed above the 253,000 employment opportunities added in April. While the headline numbers bolster confidence, the data also revealed a possible hidden warning sign.
Specifically, the unemployment rate increased slightly to 3.7%, suggesting not all is well with the economy. To be fair, it’s still a very low figure when stacked against the unemployment highs during the worst pandemic months. No one will deny that. Still, the concern is that before a structure breaks, small, almost imperceptible fissures often materialize first.
Without getting into any fear-mongering, an objective view of the historical unemployment rate – courtesy of the U.S. Bureau of Labor Statistics – demonstrates that before the Great Recession, the unemployment rate hit a bottom of 4.4% in October 2006. After a few months of bouncing from and resting this 4.4% level, the unemployment rate started creeping up.
Certainly, the acceleration was minimal at first. However, as economic woes cascaded, the unemployment rate sharply spiked. Given that the post-pandemic unemployment rate appears to have bottomed at 3.4% (posted in January and April of this year), it’s possible – though hardly a guarantee – that joblessness could rise from here.
A Questionable Financial Profile
Even if investors dismiss the unemployment rate expansion as a “Chicken Little” narrative, it’s fair to point out that the CCL stock of today is far different – and not in a pleasant way – than the CCL before the pandemic. Essentially, the financial paradigm has completely shifted.
Prior to COVID-19, Carnival’s fiscal year ended November 2019 saw total revenue hit $20.82 billion. On the bottom line, net income came out to $2.99 billion. A year later, revenue sank to $5.59 billion while the company incurred a net loss of $10.24 billion.
To stay afloat, Carnival had little choice but to engage in desperate measures, including selling its own stock to raise cash and tacking on hefty debt. As of the quarter ended February 2023, Carnival held $33.82 billion in long-term debt. In the fiscal year prior to the pandemic, long-term debt was only $9.68 billion.
In other words, by buying CCL stock now, you’re getting a diluted version of the cruise ship operator. Even worse, society may be headed toward a recession.
Is CCL Stock a Buy, According to Analysts?
Turning to Wall Street, CCL stock has a Moderate Buy consensus rating based on eight Buys, two Holds, and two Sell ratings. The average CCL stock price target is $13.82, implying 14.3% downside risk.
The Takeaway: CCL Stock Might Not be a Clear-Cut Opportunity
Admittedly, receiving the endorsement of two of Wall Street’s heavyweights represents a major confidence booster. Under that context, CCL stock deserves to swing higher. Unfortunately, the Carnival of today is a weakened doppelganger. Further, it’s possible that the consumer economy could be fading, thus necessitating a cautionary approach.
