The marketwide rally from October 2022's low has some suggesting the beginning of a new bull market (definitions vary). But even if it isn't, statistics suggest the end of the bear market could be near. One more decent market rally could do the trick. Then the biggest risk becomes missing out on the earliest days of a long-term recovery, which happens to be the most bullish portion of a new bull market. If the next bull market is underway, investors will want to consider buying into a downtrodden stock like cruise company Carnival Corp. (CCL -0.66%).
Yes, Carnival has had its problems of late. The COVID-19 pandemic was downright disastrous for the business. It's still feeling the pandemic's fiscal impact, in fact, remaining operationally in the red. The heavily indebted outfit is also feeling the sting of higher interest rates at the same time inflation is increasing its costs. Meanwhile, the analyst community isn't exactly helping the stock's bullish case. The current consensus price target of $13.12 is 10% below the stock's present price.
Despite the problems, there are three key factors working in Carnival stock's favor. They may combine to help tip the scales back toward net bullishness for this travel stock.
1. Travel and tourism spending is robust again
Consumer travel is back in full swing following the pandemic-prompted lull. The United Nations World Tourism Organization reports international travel reached 80% of its pre-pandemic level during the first quarter of this year, while the World Travel & Tourism Council says the sector's revenue will come within 5% of 2019's levels in 2023 before hitting a new record in 2024.
And this recovery is particularly pronounced within the United States, where Carnival drums up much of its business. The U.S. Travel Association predicts that the number of domestic trips taken (for business as well as leisure) this year will just eclipse 2019's tally before moving firmly into record territory in 2024, confirming demand data from market research outfit Skift.
None of these numbers specifically point to demand for cruises. They all point to consumers' willingness to splurge a little, though, which is always beneficial to the cruise business.
2. Carnival's future revenue is already established
And what the industrywide statistics don't say about the health of the cruise tourism market, Carnival does. Chief among these measures is the number of people that have already made a deposit toward a future trip. During the second fiscal quarter (ended May 31), deposits hit an all-time high of $7.2 billion, surpassing May 2019's record of $6 billion. Not that refunds are frequently requested, but these deposits are largely non-refundable except for extraordinary circumstances like a pandemic.
This isn't the only company-specific metric casting a bullish light on Carnival stock, however. In a similar vein, based on the demand the company's currently seeing it expects cabin occupancy rates of 100% for the rest of the fiscal year. It's actually overbooked by 7% for the quarter currently underway.
None of this has been enough to push Carnival out of the red and back into the black. That's coming, though. Assuming nothing major changes between now and then, the analyst community is calling for this year's projected per-share loss of $0.27 to swing to a profit of $0.84 per share next fiscal year.
Data source: StockAnalysis.com. Chart by author.
That return to profitability has the potential to be a huge bullish catalyst for the stock.
3. The stock is well down following its Q2 earnings report
Investors should consider jumping into Carnival shares in anticipation of a new bull market specifically because the stock tumbled following Monday's report for the fiscal second quarter ended May 31.
It's not clear why investors sold the stock so sharply following the release of last quarter's numbers. The top and bottom lines were both better than expected, and both were up year over year. Carnival CEO Josh Weinstein even noted in the press release, "Based on continued strength in pricing, we delivered outperformance in the second quarter and raised our expectation for revenue in the second half, which coupled with the interest expense benefit we are capturing from deleveraging will bring another $275 million dollars to the bottom line for the year." That's all favorable.
The only other plausible explanation for the stock's stumble on Monday, therefore, is profit-taking in the wake of the stock's big run-up from May's low (lending creditability to the adage "buy the rumor, sell the news.") That's fine. But such sell-offs are often short-lived, soon ceding back to more level-headed perspectives based on a company's fundamentals.
In other words, Carnival stock may not remain discounted for much longer. That's especially true if the marketwide tide turns positive again and the budding bull market becomes a full-blown reality.
