Time to Revisit Carnival Cruise Lines Stock at These Levels

Cruise ship operator Carnival Cruise Lines NYSE: CCL stock has been recovering off its pandemic lows as COVID vaccinations accelerate and re-openings spread. The cruise industry was a major epicenter during the pandemic, the rush back into value away from growth stocks is evidenced by growing optimism for domestic cruises to resume by mid-July 2021. Investors are mostly relieved that the worst material effects of the pandemic are behind them. The travel and lodging stocks have been in recovery. The road to breakeven and ultimately profitability is a long one. As the benchmark indices hit new highs, the epicenter stocks are still attempting to recovery back to pre-COVID levels. Carnival shares are still trading at almost half its pre-COVID levels, which leaves more room for upside. Prudent investors can consider gaining exposure on opportunistic pullback levels as the recovery continues to move forward.

Q1 2021 Business Update

On April 7, 2021, Carnival (finally) released its first-quarter fiscal 2021 results for the quarter ending March 2021. The Company reported GAAP loss of (-$2 billion) for the quarter or earnings-per-share (EPS) loss of (-$1.79) versus consensus analyst estimates for a loss of (-$1.61), a (-$0.18) per share miss. Revenues fell (99%) year-over-year (YoY) to $25 million missing consensus estimates of $72 million. The cash burn was, “better than expected as the Company has identified and implemented opportunities to optimize its monthly spend.” Booking volumes for future cruises rose 90% sequentially over Q4 2020.   Carnival CEO Arnold Donald stated, “We are focused on resuming operations as quickly as practical, while at the same time demonstrating prudent stewardship of capital and doing so in a way that serves the best interests of public health… Our portfolio of brands have clearly been an asset as we resume operations this summer with nine ships across six of our brands.” He continued, “Throughout the pause we have been positioning Carnival Corporation to return to serving guests an operationally strong company that we were before. With an exciting roster of six new, more efficient chips by December and with lower capacity from the exit of 19 less efficient ships, we expect to capitalize on pent-up demand and achieve significant cost improvement from greater efficiency of our fleet, along with ongoing streamlining of shoreside operations.” The Company ended the quarter with $11.5 billion in cash. and short-term investments.

Conference Call Takeaways

CEO Donald set the tone, “Of course, one thing on everyone’s mind is, when are we going to resume sailing here in the U.S.? Now while we’re disappointed with the April 2^nd additional guidance issued under the conditional sail order, all 30 our ships in U.S. waters, and that full under the conditional sail order, have achieved green status. And we are continuing work with the CDC and the administration to find practical approaches to resuming cruising in a way that serves the best interest of public health.” While working with the U.S. CDC, he noted that 59 of 90 ships are outside the U.S. conditional sail order. The pent-up demand is real as evidenced by the 90% sequential growth in booking volumes. The P&O brand had the single largest booking day in seven years when they announced the coastal sailings of its two ships in the summer with nearly one billion media mentions so far. It’s Cunard brand saw the largest single day bookings in a decade upon announcement of Cunard’s Summer at Sea luxury UK voyages while Princess had its second biggest book day ever in the UK. He detailed the new Carnival Mardi Gras ship will feature the world’s only roller coaster at sea, the BOLT and Holland America’s new Rotterdam cruise ship will feature it’s iconic music walk experience. Princess will launch two new ships and Seabourn Venture will include two 360-degree view; battery-powered submarines capable of taking passengers up to 1,000 feet underwater.

CDC Update

On April 29, 2021, The CDC updated its Framework for Conditional Sailing Order citing the possibility for U.S. sailing to resume mid-July 2021 for cruise lines that meet the requirements. “CDC looks forward to continued engagement with the industry and urges cruise lines to submit Phase 2A port agreements as soon as possible to maintain timeline for passenger voyages by mid-July”, stated CDC spokesperson Caitlin Shockey. On May 6, 2021, the CDC provided more updates to resume sailing operations. This requires each cruise line to conduct at least one simulation cruise per ship demonstrating all the protocols to meet CDC guidelines before submitted the application for COVID-19 Conditional Sailing Certificate. Each simulated trip should have at least 10% of the maximum number of passengers permitted onboard for restricted voyage. However, Norwegian Cruise Lines NYSE: NCLH raised concerns on the short lead time and raising concerns about meeting the mid-summer restarts.

Improving Narrative

Kudos to CEO Donald for painting the narrative of Carnival surviving the worst and using the downtime to grow efficiencies to emerge from the pandemic as a more operationally efficient, effective, and agile organization. The image of a spring loaded operation ready to resume on the go ahead from the CDC has improved sentiment, which continues to improve as equity markets continue to rise. As ugly as the Q1 2021 numbers were, it builds in more upside as the bar gets set extremely low. Prudent investors monitor opportunistic pullbacks for exposure ahead of the full resumption of operations.

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 $27.92 Fibonacci (fib) level. The 15-period MA continues to rise at $25.78, while the weekly stochastic is waiting to cross up or cross down. The daily rifle chart is down trending with a falling 5-period MA at $26.77 after triggering the daily market structure high (MSH) on the rejection off $27.82. Bulls are trying to protect the  market structure low (MSL) buy trigger above $26.51. The daily Bollinger Bands (BBs) are both compressing inwards which precedes an impending larger price range break. The direction of the break is the main question. The daily stochastic has crossed down so the ball will be in the bear’s court as it nears the daily lower BBs. Prudent investors can watch for opportunistic pullback levels at the $25.28 fib, $23.78 fib, $22.06 fib, $21.03 fib, $19.21 fib, $17.78 fib, and the $16.78 fib. Keep an eye on peers RCL and NCLH as these stocks tend to move as a group.