Carnival Stock Up 19% in December – Time to Buy CCL Stock?

The price of Carnival stock is up 19% so far this month following the release of a positive quarterly earnings report and news about the milder-than-expected severity of the omicron variant of the COVID-19 virus.

Back on 20 December, Carnival published a business update covering the fourth quarter of its 2021 fiscal year.

Among the most interesting statements made by the company, Carnival announced that it had $9.4 billion in liquidity. Meanwhile, it said that it was currently operating at 61% of its capacity and expects to operate at full capacity by the spring of 2022 (March to June).

In regards to the company’s outlook, its Chief Executive Officer Arnold Donald stated: “Our cash from operations turned positive in the month of November, and we expect consistently positive cash flow beginning in the second quarter of 2022 as additional ships resume guest cruise operations.”

He added: “We enter the year with $9.4 billion of liquidity, essentially the same liquidity level as last year but with significantly improved cash flow generation ahead, as ship operating cash flow and customer deposits continue to build.”

During the fourth quarter of 2021, the average monthly cash burn for Carnival was $510 million. Meanwhile, the company forecasted that it will swing to profitability during the second semester of 2022. This statement was in line with the market’s estimates for the firm.

What could be expected from this travel stock amid these latest developments? In this article, I’ll be assessing the price action and fundamentals to outline plausible scenarios for the future.

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Carnival Stock – Technical Analysis

Last month when I wrote about Carnival, the price of the stock was rallying on the back of positive news from Pfizer (PFE) in regards to the elevated efficacy of the drugmaker’s COVID pill.

However, the appearance of the omicron variant and the reintroduction of travel restrictions in many corners of the world prompted a swift decline in CCL stock that pushed the price to its lowest level since November 2020.

Back then, I highlighted that the 200-day simple moving average remained the most relevant resistance to watch to predict the direction that the stock could take. The price action failed to move above this threshold amid virus-related concerns and that accelerated the downtrend for CCL stock.

A couple of weeks after, the price bounced off the trend line resistance shown in the chart above and it is now heading to tag the upper bound on the back of the firm’s positive quarterly business update.

Two relevant resistance areas lie ahead that are threatening to limit the extent of this uptick. The first one is the upper bound of the parabolic formation shown in the chart and the second one is the 200-day SMA, which is standing at $24.5 per share at the moment.

Unless the price breaks above the $25 level, chances are that the stock will remain on a downtrend as the market continues to assess the extent of the impact that the omicron variant could have on the resumption of the firm’s operations.

Momentum indicators at the moment are favoring a short-term bullish outlook with the Relative Strength Index (RSI) standing at 62 while the MACD is surging to positive territory after crossing above the signal line. This move is being accompanied by steadily increasing positive histogram readings.

All things considered, the short-term outlook for Carnival stock is bullish with a first target set at $25 per share resulting in a potential 15% gain. However, the mid-term outlook remains bearish unless the price moves above this relevant area of resistance.

Carnival Stock – Fundamental Analysis

With reserves of over $9 billion, Carnival has more than enough to sustain its quarterly cash burn of around $1.5 billion for many periods. Meanwhile, the firm’s forecasts concerning its profitability are encouraging as the burn could be reduced significantly or fully overturned by the second semester of next year.

For Carnival, slowing down the pace at which its cash reserves are being consumed is important for both its short and mid-term outlook as the company can use any funds that remain once the virus crisis is fully over to pay back a portion of its elevated long-term debt – currently standing at $33 billion.

Any pandemic-related developments can affect the firm’s outlook at this point. The market at this point that the crisis will end somewhere around the first semester of next year once COVID pills start to roll out in multiple corners of the world.

At its current price of $21.8 per share, the stock is trading at 12 times its forecasted earnings per share for 2023. Considering the company’s elevated debt and the many uncertainties that still exist concerning the course of the pandemic moving forward, the firm seems fairly valued and, therefore, the upside potential seems limited.

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