Carnival Stock Up 12% in November – Time to Buy CCL Stock?

The price of Carnival stock is up 12% so far in November following positive news on the virus front after Pfizer announced that its COVID pill proved to be 89% effective in avoiding hospitalization and death.

The results came as part of a preliminary report from a cohort of 1,219 adults who were enrolled for the drug’s Phase 2/3 trial. The trial included sites in North and South America, Europe, Africa, and Asia with 45% of those patients being located in the United States.

The pill, called paxlovid, produced positive results among patients who were treated three and five days after symptoms first appeared. Due to the “overwhelming efficacy” of the treatment, the company will seek emergency-use approval from the US Food and Drug Administration (FDA) in the United States shortly.

This announcement comes only weeks after Merck (MRK) also released preliminary results for its COVID pill known as molnupiravir. However, this latter treatment displayed a much lower rate of efficacy in preventing hospitalizations of death among patients.

For investors, Pfizer’s COVID pill could put a definite end to the pandemic and may accelerate Carnival’s recovery in the following quarters.

Can this development prompt the beginning of an uptrend for Carnival stock? In the following article, I’ll be assessing the price action and fundamentals of the stock to outline plausible scenarios for the future.

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Carnival Stock – Technical Analysis

As I highlighted in a previous article about Carnival stock, the 18 October trend line break led to a short-term 6.6% correction in the price from 18 October to 28 October but shares started to recover after Merck’s COVID pill got authorization from the United Kingdom’s Medicines and Healthcare Products Regulatory Agency – an important milestone for what would be the first oral treatment for the virus that caused the pandemic.

Since then, the stock has continued to rally while news from Pfizer prompted a pronounced 8% jump last Friday.

Now, the price is attempting to climb above the falling wedge formation highlighted previously. It is important to note that trading volumes last Friday exceeded the 10-day average by more than two times. This highlights increasing buying volumes for Carnival stock.

Meanwhile, momentum indicators have ticked higher with the MACD crossing above the signal line on the back of steadily rising histogram readings while the Relative Strength Index (RSI) jump to 63 – also a bullish signal.

For now, the next resistance area to watch would be the 200-day simple moving average, which is standing at $25 per share. If the price moves above that mark, chances are that we will be witnessing a full-blown trend reversal for Carnival stock on the back of this positive vaccine-related news.

Carnival Stock – Fundamental Analysis

The approval of Pfizer’s COVID pill in multiple corners of the developed world should lead to a faster-than-expected recovery for Carnival Corp. In this regard, current estimates point to the company jumping back to pre-pandemic levels in 2023.

If we anticipate that Carnival can produce similar sales to 2019 by the end of 2022 on the back of this treatment, we could see the company delivering total sales of around $20 billion next year.

As for its profitability, Carnival managed to report net margins of around 14% to 16% from 2016 to 2019 but interest expenditures were quite lower back then. As a result of the higher debt the company had to take to survive the downturn, net income may plunge to around $1 and $1.5 billion in 2022 depending on how close sales land compared to 2019 levels, down from the over $2 billion the firm reported back then.

Using the lower bound of those estimates and the firm’s latest share count of 1.13 billion we arrive at a 2022 forecasted GAAP earnings of $0.88 per share. Using that figure, the stock will be trading at 28 times its forecasted earnings for next year.

However, Carnival has more than $7 billion in cash and equivalents that it can deploy to trim a portion of its long-term debt to reduce its interest expenditures down the line and that opens up the possibility of posting a higher EPS figure of $1 to $1.2 in the future.

All in all, the firm’s valuation at the moment seems fair for a company that currently has elevated debt commitments it still has to deal with. However, given its currently conservative valuation, if the price moves above the 200-day moving average chances are that we will witness a short-term rally on the back of Pfizer’s news.

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