Is it Time to Buy Carnival Corporation Stock?

Cruise ship operator Carnival Corporation NYSE: CCL stock has given a nice pullback since peaking around $31.46 on the reopening momentum. The travel and leisure was an epicenter sector during the pandemic and has seen a surge and subsequent sell-off with the normalization of travel with the acceleration of COVID-19 vaccinations. Shares are making higher lows indicating buyers are raising the support on pullbacks. However, it could also be setting up for a daily bear flag if the trend line breaks. The Company has initiated numerous at-the-market sell programs to raise much-needed cash during the rally. On Aug. 13, 2021, 27 people were tested positive for COVID-19 despite being vaccinated. Shares were able to rally back from the news, which is a good sign that markets are trying to put COVID-19 in the rearview mirror as pent-up demand continues to overflow well into 2022 bookings. Shares continue to trade well below its pre-COVID levels which leaves more meat on the bones as far as upside. Prudent investors looking for opportunistic pullbacks in this segment can consider adding exposure in shares of Carnival.

Q2 2021 Business Update

On June 24, 2021, Carnival released its second-quarter business update for the quarter ending June 2021. U.S. GAAP net loss was (-$2.1 billion) and an adjusted net loss of (-$2 billion). The Company ended the quarter with $9.3 billion in cash and short-term investments. This is sufficient liquidity to return to full cruise operations. Customer deposits increased in the quarter sequentially. Cash burn was improved for forecasts and 42 ships from eight of the nine brands have resumed or announced the resume guest operations by November 30, 2021, which is greater than 50% of the Company’s capacity. Booking volumes were 45% year-over-year (YoY). Cumulative advanced bookings for full-year 2022 are ahead of very strong 2019. Carnival CEO Arnold Donald commented, "We are working aggressively on our path to return our full fleet to operations by next spring. So far, we have announced that 42 ships, representing over half of our capacity, have been scheduled to return to serving guests by this fiscal year-end. We are currently evaluating various deployment options with a focus on maximizing cash flow, while delivering a great guest experience and serving the best interests of public health." Total customer deposits as of May 31, 2021 and February 28, 2021 were $2.5 billion and $2.2 billion, respectively.

Conference Call Takeaways

CEO Donald set the tone, “We are evaluating additional deployment options throughout the fall and winter periods with a focus on maximizing future cash flow while delivering a great guest experience in a way that, of course, serves the best interest of public health. Again, our highest responsibility, and therefore, our top priority is always compliance, environmental protection and the health, safety, and wellbeing of our guests, of the people in the communities we touch and serve, and of course, our Carnival family, our team members shipboard and shoreside. We continue to work toward resuming operations also in Australia and Asia. And while we can't predict the pace of the ramp up to full fleet operations, we continue to expect full operations well before our important summer season next year. In the near-term, we will be impacted by physical distancing requirements on a portion of our cruises, which limits our historically high occupancy levels. And also, near-term, we will be impacted by restricted deployment options as not all of the 700 ports we visit are receiving guests just yet. As more people will receive vaccines as treatment continue to advance and as mitigation of the spread of the virus continues, current restrictions of course will also evolve, and we are confident we will eventually be able to sail without these restrictions. Throughout this pause, we have been proactively managing to resume operations as an even stronger operating company. Our strategic decision to accelerate the exit of 19 ships has lowered our capacity growth to roughly 2.5% compounded annually from 2019 through 2025, that's down from 4.5% pre-COVID. Moreover, we have opportunistically rebalanced our portfolio through the ship exits as well as the ship transfer and a modification to our newbuild schedule, the combination of which will transfer 8,000 boats from our Continental European brands to America's favorite cruise line, Carnival Cruise Line, to optimize the current environment, maximize cash generation and improve our return on invested capital. While overall fleet capacity growth is constrained, we will benefit from an exciting roster of new ships spread across our brands to capitalize on the pent-up demand and drive even more enthusiasm, excitement, and demand around our restart plan. Nearly every brand will soon have a new ship welcoming guests for the first time beginning with our namesake brand, Carnival, introducing the new Mardi Gras.”

Financing

CEO Donald stated, “I want to acknowledge here David Bernstein and our entire finance team for their very successful efforts in helping us to manage the balance sheet. As we said in our press release this morning, the company successfully refinanced a $2.8 billion term loan and an annual future interest savings of over $120 million, and this is the first of many opportunistic refinancings that we expect to undertake. He concluded, “Agility has been a key strength over the last 15 months. We expect the environment to remain dynamic as we rollout our fleet, while continuing to adapt to an ever-changing situation. So, we are working aggressively to return our fleet to guests operations as quickly as practical while still serving the best interest of public health. With the aggressive actions we've already taken, optimizing our portfolio, and reducing capacity, we are well positioned to capitalize on pent-up demand and to emerge a leaner, more-efficient company, reinforcing our global industry-leading position. We have secured sufficient liquidity to see us through to full operations. And once we return to full operations, our cash flow will be the primary driver to return to investment grade credit over time, creating greater shareholder value.”

CCL Opportunistic Pullback Price Levels

Using the rifle charts on the weekly and daily time frames provides a near-term view of the landscape for CCL stock. The weekly rifle chart has a make or break as the 5-period moving average flattens near the $23.42 Fibonacci (fib) level.  The 15-period MA is falling at $24.47 as the channel gets tighter setting up for an eventual breakdown on the stochastic cross down or breakout on the weekly 5-period MA crossover up through the 15-period MA. The weekly upper Bollinger Bands (BBs) sit at $33.06. The weekly market structure low (MSL) buy triggered above $23.55. The daily rifle chart has been compressing as indicated by the inward compression of the daily BBs. The daily 5-period and 15-period MA are flat at $23.20 and $23.40, respectively. The daily stochastic has been in a downward stair step mini inverse pup oscillation. This means every time shares attempt to bounce, they get pushed back down, however, at higher lows. This will resolve when the daily BB compression turns into an expansion. The only question is the direction of the price range expansion.  Prudent investors can watch for opportunistic pullback levels at the $22.36 level, $21.35 fib, $20.52 level, $19.62 level, $18.98 fib, $17.25 fib, and the $16.20 price level. Keep an eye on peers RCL and NCLH as these stocks tend to move as a group.