Friday, 24 March 2023

Why Carnival Stock Popped on Thursday

by Earn Media

What happened

Shares of cruise company stock Carnival (NYSE: CCL) slipped 1.4% on Wednesday, only to change course and sail ahead 5.4% on Thursday as of 11:35 a.m. ET.

The positive note from Stifel Nicolaus, which lies behind today’s rally, actually came out on Wednesday. But yesterday’s rejoicing was quickly snuffed out by later news of a new 0.25-percentage-point interest rate hike by the Federal Reserve, and by Treasury Secretary Janet Yellen’s statement that regulators are not considering expanding deposit insurance for bank customers. With so much bad news clamoring for attention, investors couldn’t really focus on Carnival’s good news yesterday.

But perhaps today they can.

So what

StreetInsider has the details, reporting that investment bank Stifel Nicolaus yesterday reiterated its buy rating, and its $18 price target, on Carnival stock. With gallows humor, Stifel admitted “we will probably be dead wrong” in predicting good news for Carnival investors next week. Nevertheless, the analyst is looking at Monday’s upcoming earnings report as a positive short-term trading opportunity for the stock.


Stifel cites “recent trading weakness in CCL shares” as its reason for optimism, arguing that “expectations are subdued, which we really like” — because it will make it easier for Carnival to exceed expectations when it reports on Monday.

Now what

And what are these expectations, exactly? According to Yahoo! Finance figures, most analysts are expecting Carnival to report a $0.60-per-share loss (subdued expectations, indeed!) on sales of $4.3 billion.

That sounds like bad news, but consider: Even if the news is as bad as analysts forecast, it would mean Carnival grew its revenue 167% year over year in the fourth quarter of 2022, and cut its losses by 64% year over year, saving more than $1 a share. That already would be kind of good news — and there’s the potential for Carnival to surprise investors to the upside if its losses aren’t as bad as feared.

A second way Carnival could make investors happy on Monday might be by following up Q4 earnings with strong guidance for 2023. There, a positive surprise is even more likely. Analysts are forecasting 73% sales growth for Carnival in 2023 ($21 billion), and a loss of only $0.08 per share. That prediction is already pretty close to breakeven. It wouldn’t take much — slowing interest hikes at the Fed perhaps, or a bit less discounting on ticket prices — to flip Carnival from a loss to a profit this year.

That’s what investors are hoping for. I’ll bet it’s what Stifel is hoping for, too.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.