A Deep Dive into Carnival Stock After a 30-Day Rally

CCL has dug itself out of penny stock territory

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Carnival Corporation & Plc (NYSE:CCL) operates 10 cruise-related brands and 104 total ships. Since the beginning of the pandemic, CCL, along with all other cruise stocks, has taken heavy blows to its business. Carnival stock was one of the first to feel the impact of COVID-19 with the travel restrictions, and continues to be measurably impacted.

As a result of the pandemic, Carnival stock has taken a not--so-surprising 60% haircut in 2020. But there's always a silver lining; the shares have almost tripled off their April 2 record bottom of $7.80. Manageable post-earnings reactions have helped CCL dig out of penny stock territory.

Using Schaeffer's robust historical database, we conduct extensive research on each underlying equity and determined which of those underlying equities’ options have historically had underpriced or overpriced options. In doing so, each stock is given a Schaeffer's Volatility Scorecard (SVS) ranking. CCL is currently sporting a ranking of 78 out of 100. A high SVS reading indicates that CCL stock has consistently delivered bigger returns than its options implied volatility (IV) levels have predicted, meaning it may be a strong candidate for premium-buying strategies going forward. 

As far as earnings go, Carnival has beat expectations on two of its four most recent quarterly earnings reports. For the company's fourth quarter of 2019, Carnival beat expectations by $0.12. In the first quarter of 2020, the company missed expectations by a margin of $0.05. Carnival reported a huge loss of -$3.30 and missed expectations by $1.04. in the second quarter of 2020 during the height of the pandemic. Yet in its most recent quarter, Carnival's losses were slimmer than expected by one penny. For Carnival's next earnings report, due out before the open on Dec. 18, the company is expected to report a loss of $1.88.

The last dividend Carnival paid was for $0.50 in the first quarter of 2020, pre-pandemic. Prior to the COVID-19 outbreak,  the company had consistently paid dividends since 2004.

At this point and from a mostly fundamental perspective, long-term investors likely should not expect CCL stock price to jump back up to its pre-pandemic levels in the short-term. Carnival stock likely won’t be able to produce positive earnings per share until late 2021 or 2022. Optimistically, Carnival revenue should be able to reach back up to previous levels some time in 2022. Overall, CCL does have the potential to bounce back above a $40 in stock price over the next 4-5 years.

However, Carnival now also carries a massive $26.35 billion in debt and just $8.18 billion in cash. Investing in CCL at this time is just a bet that the entire travel industry will resume and thrive at some point down the line. Carnival stock is a potential long-term play for investors that are patient enough to hold while waiting for the company to recover.

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