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Carnival stock sails towards earnings after huge rally

​​After an impressive rally this year, can Carnival’s upcoming earnings support further gains?

Trade Source: Bloomberg

​​​Carnival, the largest cruise operator in the world, has certainly faced its fair share of challenges during the pandemic. However, the company's recent performance and recovery efforts are worth noting. Despite the shutdown of operations and heavy borrowing to stay afloat, Carnival has managed to make significant strides in its comeback.

​In the second quarter (Q2) of 2023, Carnival achieved record sales of $4.9 billion, a testament to the growing demand for cruises as people eagerly return to this form of travel. The company also reported record deposits of $7.2 billion, indicating a strong level of customer interest and commitment. It seems that price increases have not deterred potential passengers, further bolstering Carnival's recovery.

​While losses persist as the company rebuilds, there are positive signs to be found. The net loss of $407 million in the Q2 represents a marked improvement from the over $1 billion loss experienced last year. Additionally, Carnival achieved positive operating income for the first time since the pandemic began, and its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) reached $681 million, nearing the upper end of guidance. Looking ahead, the company expects these figures to more than triple in the Q3, with a return to adjusted net profit on the horizon.

​It is worth noting that Carnival's long-term debt remains high, standing at $32 billion as of the end of the second quarter. This is a result of the company's need to issue substantial debt to sustain operations during the revenue drought caused by the pandemic. However, Carnival is actively working towards reducing this debt burden and has already made progress, having paid off over $1 billion of its peak debt. Furthermore, the company has taken steps to enhance shareholder value by diluting its share count through equity issuance, but it has also been engaged in share buybacks to counterbalance this.

​Overall, Carnival's recovery journey is a compelling story to follow. While challenges persist, the company's record-breaking sales, improving financial performance, and debt reduction efforts indicate a positive trajectory. As the cruise industry continues to rebound, Carnival's ability to adapt and navigate these turbulent waters will be crucial in determining its long-term success.

​Carnival analyst ratings, price targets and sentiment

Carnival analysts Source: Refinitiv
Carnival analysts Source: Refinitiv

​Refinitiv data shows a consensus analyst rating of ‘hold’ for Carnival which is expected to publish its Q3 results on 29 September 2023. Analysts show 1 strong buy, 3 buy, 2 hold and 4 sell - with the median of estimates suggesting a long-term price target of 1,183.45p for the share, roughly 6% higher than the current price (as of 18 September 2023).

IG Carnival sentiment Source: IG
IG Carnival sentiment Source: IG

​IG sentiment data shows that 88% of clients with open positions on the share (as of 18 September 2023) expect the price to rise over the near term, while 12% of clients expect the price to fall. Trading activity over this week shows 100% of sells and this month 54% of sells.

​Carnival technical analysis

​At the end of July the Carnival share price tried to overcome the 2018-to-2023 downtrend line and 200-week simple moving average (SMA) at 1,332.50 pence but was rejected by these.

​The share has then given back around 20% of gains from its 1,376.5p July peak by slipping to last week’s low at 1,059p.

​Carnival Weekly Candlestick Chart

Carnival weekly candlestick chart Source: TradingView
Carnival weekly candlestick chart Source: TradingView

​Over the past few weeks the Carnival share price has found support around the 38.2% Fibonacci retracement of the April-to-July advance at 1,089p, while still having risen by 87% year-to-date.

​The fact that the Carnival share price remains above its 974.20p late June low is encouraging for the bulls and seems to indicate that the past couple of months’ slide is just a retracement in a strong uptrend and not a major bearish reversal.

​Carnival Daily Candlestick Chart

Carnival daily candlestick chart Source: TradingView
Carnival daily candlestick chart Source: TradingView

For a medium-term bottom to be confirmed, however, a rise and daily chart close above the late August high at 1,190.00p would need to occur. Only then could the long-term downtrend line at 1,240p be back in sight. It would need to be exceeded on a weekly chart closing basis for this year’s high at 1,376.50p to be back in the frame.

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