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Carnival Corporation is expected to deliver its quarterly earnings report on 22 June. The consensus EPS forecast for the quarter is $0.47. The reported EPS for the same quarter last year was $0.49. Future behavior of price action will heavily depend on the data released in the report.

The CCL stock appreciated in the beginning of the trading session on 23 March when the last earnings report was released, the factors that can influence the stock price will be discussed in this report.

As predicted, CCL stock grew when the last earnings report was released
As predicted, CCL stock grew when the last earnings report was released

Performance indicators

52 Week High-Low$66.48 – $42.94
Dividend / Div Yld$1.60 / 2.41%
EV/EBITDA Annual8.96
Consensus EPS forecast Q1$0.47
Reported EPS Q2/16$0.49
Forward PE17.99

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Opportunities and Strength

Many growth factors of Carnival’s performance remained the same for the last three months. However, the company got a chance to reflect on the most recent earnings report and readjust its strategy to better fit into the ever-changing market.

Financial Performance. Past performance is not always an indicator of future success. The equity market can be quite harsh to people, who do not follow this rule. Past performance should not be trusted but, of course, can be used as an indicator and a benchmark. And Carnival’s past performance is giving all the good signs to the potential investors: the company outperformed the market in the last one year, growing 36.3% in 12 months. Positive earnings surprises history adds to the bullish sentiment.

CCL outperformed both the industry and the S&P 500
CCL outperformed both the industry and the S&P 500

Brand Recognition. Being number one in terms of image, revenue and market capitalization adds a lot of credibility and desirability to the cruise company. People want to be served by the largest — and therefore, as they think, the safest and most attractive — tour operator. Carnival is present on all continents and has a reputation of a global cruise leader. The size of it helps the company maintain lower costs than smaller competitors and allows to operate in budget, premium and luxury segments.

New Ships. ‘Growth through volume’ could have easily become the official motto of Carnival’s top management. The company adds new ships to its fleet on a regular basis. Majestic Princess, launched this April, became the first ship tailored especially to Chinese customers. Three more ships will be launched in 2018. All in all, 19 new ships will be introduced to the customers by 2021, two ships more than previously expected. High expansion rates add to the market expectations and can push the stock price up.

New and renovated CCl ships
New and renovated CCl ships

Cost Efficiency. In September 2015, the company set itself a sustainability goal with a five-year plan. And now, one and a half years later it is making a decent progress towards reaching it. Sustainability measures are not only good for the environment and company’s ‘green image’, they also provide solid bottom line benefits when it comes to fuel, water and electricity consumption. Carnival saved $95 million due to the program and plans to save up to $75 million in the current year.

Threats and Weaknesses

Financial performance of Carnival Corporation & plc in the last four quarter looks promising, yet the company can encounter certain problems that are not only hard to address, but also cannot be solved by the means of the company itself and include the following.

Stretched Valuation is a problem for many high performing companies, and Carnival is not an exception. EV/EBITDA ratio, that is used for valuation of capital-intensive businesses, is equal to 10.13, the highest in five years. Stretched valuation makes the stock look less attractive to value investors. The latter prefer buying undervalued shares and sell overvalued ones. Buying pressure that CCL stocks are currently facing can curtail its further growth.

P/E ratio indicates mediocre valuation
P/E ratio indicates mediocre valuation

Negative Currency Translation. International companies enjoy higher stability due to their size and geographic diversification. This advantage, however, does not come without a price. By receiving a portion of its revenue from abroad, Carnival makes its financial position less stable. Exchange rate fluctuations can seriously affect the amount of money it can get when calculated in the United States dollars.

The US dollar index. Strong dollar corresponds to lower revenues from abroad
The US dollar index. Strong dollar corresponds to lower revenues from abroad

Macroeconomic Risks. Maritime traveling is a business that implies a certain degree of risk. Global trends and events can have an impact on the whole industry, and not only in the positive way. An ever-growing number of terrorist attacks in Europe, for example, is very likely to decrease the number of North American tourists who would dare to visit this part of the world. Political tensions between the United States and other countries may deter tourists, as well.

Political risks can threaten the profitability of CCL's business
Political risks can threaten the profitability of CCL’s business

 Conclusion

The behavior of price action is most likely to depend on the data, disclosed by Carnival Corporation in the earnings report on April 22. The market can be expected to react with a buying pressure should results turn out to be better than previously expected and selling pressure in case financial performance of the company doesn’t meet the expectations.

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