CCL stock was down Thursday amid news that Cunard Line, one of Carnival’s nine cruise lines, had cancelled five cruises because crew members boarding the Queen Elizabeth reportedly tested positive for Covid-19.
The ship had been slated to sail with passengers on July 19. Instead, Queen Elizabeth’ return to service was pushed back to Aug. 13.
The Cunard development was an additional weight on an already beleaguered Carnival. CCL stock was already in a month-long downtrend.
Carnival Cruise Lines’ (CCL) recently reported a $2.1 billion second-quarter loss, or an adjusted loss of $2 billion. Another apparent pressure was the cruise industry being stuck between the U.S. Centers for Disease Control and Prevention and the state of Florida in their battle over whether to lift the CDC’s restrictions on cruise departures from the Sunshine State.
CCL Stock: Stuck Between CDC, Florida Dispute
This week, the federal government appealed a federal district judge’s ruling last month in favor of Florida. Siding with Florida, the district judge issued an injunction against the CDC restrictions. That was to have taken effect July 18.
The CDC appeal went to the 11th U.S. Circuit Court of Appeals, in Atlanta.
The court battle leaves many would-be passengers unsure of the status of departures and uncertain about how safe it is to travel by sea.
U.S. District Judge Steven Merryday’s 124-page ruling said the CDC overstepped its legal authority.
CCL Stock: Looking For Silver Lining
The cruise line’s second-quarter report aimed to reassure investors by noting that it held $9.3 billion in cash and short-term investments.
The importance of that money is that it can help the cruise line survive the ongoing period before passengers resume full-scale ship travel.
The company also made a point of noting 42 ships from eight of the cruise company’s nine lines plan to resume operations by Nov. 30, 2021, “with additional announcements in the coming weeks.”
In addition, Carnival said that booking volumes were up 45% for the second quarter compared to the prior stanza. And “advanced bookings for full-year 2022 are ahead of 2019,” the company said.
CCL Stock: Up 16% This Year
Despite downtrending 24% since June 8, Carnival shares are up 16% year to date vs. less than 14% for the S&P 500.
The pullback in CCL stock leaves shares 21% below the $30.73 buy point they hit early in June. Shares are still burdened by weak metrics such as earnings per share.
Departures from U.S. ports essentially ground to a halt in March 2020.
Carnival owns Carnival Cruise Line, Holland America and Princess Cruises.
Tumultuous Year For CCL Stock Investors
Cruise lines lost billions of dollars while cruising has been on hold. Carnival, like its rivals, took on billions of dollars in debt to avoid sinking financially.
Carnival has threatened to move ships from U.S. ports over the CDC’s ongoing restrictions of cruise operations that start in the U.S.
The departure restrictions stem from the Covid-19 pandemic.
CCL Stock: Shaping Up Its Finances
Carnival has used the pause in seagoing operations to rid itself of at least 16 less-efficient ships.
In addition, Carnival slashed its monthly cash burn to $500 million as of the fourth quarter. That’s down from more than $700 million in the third quarter.
Still, long-term debt ballooned to $26.96 billion as of Nov. 30. It was $9.62 billion as of Aug. 31, 2018.
Fleets Morph Into Ghost Ships
Carnival’s frustrations with the ongoing ban on U.S. cruise departures stem from the fact that, industrywide, entire cruise ship fleets sit empty and forlorn. They are docked or moored, without a passenger onboard. Many formerly grand vacation vessels have morphed into virtual ghost ships.
And Carnival executives feel that the CDC is being more restrictive with their industry than with allied businesses in hotels and airlines.
Amid the prospect of better times, is this the time to buy CCL stock? Carnival’s last breakout prior to early June was from a cup-with-handle base Feb. 22. Here’s what Carnival earnings and chart show.
Fundamentals For CCL Stock
CCL stock ranks a modest 15th out of 37 stocks in IBD’s Leisure-Services industry group, according to IBD’s Stock Checkup tool. The group itself ranks 85th vs. 73rd about two months ago, out of IBD’s 197 groups.
CCL stock has an IBD Composite Rating of 39, down from 45 in about a month. That means Carnival shares lag 61% of all stocks on a number of technical and fundamental factors, including price performance and earnings.
Generally, CAN SLIM investors consider only stocks with a score of 90 or higher on the 1-to-99 scale.
More Fundamental Analysis
CCL stock carries a low 9 for its Earnings Per Share Rating. The 9 rating is terrible but not surprising given the coronavirus pandemic’s impact on vacation cruising. It means that Carnival’s earnings per share growth has outperformed just 9% of all publicly traded companies.
Stocks with EPS Ratings of 80 or better have the best chance of success. Keep in mind, too, the company could rack up huge losses in 2021. The EPS Rating could plummet further this year.
The stock has an IBD SMR Rating (sales + profit margins + return on equity) of E. That shows that Carnival is in the bottom 20% of all publicly traded stocks when it comes to the composite profitability measurement.
The Cruise Line’s Technical Ratings Are Weak
When investors are looking for top stocks to buy, they want to see a stock shaping a proper chart pattern. IBD’s long-term research shows that certain chart patterns are the launchpads that kick off virtually all major stock moves.
In March 2017, CCL stock broke out from a flat base. But on Jan. 30, 2018, it began to downtrend. On some downturn days, volume was four times above average, a bearish sign.
In 2020, once news broke of an epidemic in China, CCL stock plunged from above 50 to a low of 7.80 over a year ago. Now it’s trading below 25.
It’s trading above its 200-day moving average but below its 50-day line.
Investors should consider stocks above their 50-day average.
Additional Technical Analysis On CCL Stock
CCL stock’s strong Relative Strength (RS) Rating of 74, down from 83 last month, of a possible 99. It is up from a moribund 16 late last year.
The best stocks tend to have an RS of 80 or better as they start a new climb. IBD’s proprietary RS Rating ranges from 1 (worst) to 99 (best), and measures a stock’s price performance in the past 12 months against all other stocks.
Still, the stock has an IBD Accumulation/Distribution Rating (A/D) of C- on an A-E scale with A+ tops. Its rating is up from its D- about three months ago. Its C- rating indicates more net buying than net selling by institutional investors such as mutual funds.
Big backing by funds helps stocks break out.
As of ))June 30, 1,163 mutual funds held the stock, according to analysis by MarketSmith.
March 31, 1,141 mutual funds held the stock, according to data from MarketSmith. That’s up a shade from 1,148 funds as of March 31 and 1,122 funds as of Dec. 31.
Bottom Line: Is CCL Stock A Buy?
Where does all of this leave CCL stock? The stock looks poised for a bon voyage once the coronavirus pandemic is truly tamed.
But the stock’s weakness in earnings per share and its Composite Rating mean that you can find better stocks.
Growth stock investors generally should focus on the best stocks in the stock market’s leading industry groups. Carnival does not meet that standard yet.
At the moment, CCL stock is not a buy.
Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and active mutual fund managers who consistently outperform the market.
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