Does Royal Caribbean Bad News Make Carnival Stock A Buy Right Now? Here's What Earnings, Charts Show

Investors in CCL stock look jittery amid the latest bad news for a rival cruise line. Carnival Cruise Lines (CCL) stock closed July’s last trading day down 5% vs. 0.5%. Six passengers aboard a Royal Caribbean (RCL) ship tested positive for Covid-19. Only one of the six experienced symptoms, and a Royal Caribbean spokesperson said that person’s symptoms were “very mild.”




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The positive tests occurred despite precautions taken by Royal Caribbean. The cruise line requires all passengers and crew over the age of 16 to be vaccinated.

Carnival is requiring similar precautions on its ships. It is attempting to require 95% of passengers and all crew to show proof of vaccination against Covid-19 as a condition of sailing, but Florida is resisting that requirement.

Carnival also recently said it would begin to require passengers 12 years of age and older departing from Florida who are not vaccinated against Covid-19 to have travel insurance and medical evacuation coverage.

CCL Stock: Down Amid Rival’s Bad News

Four of the Royal Caribbean passengers who tested positive are adults. Two are children.

Almost predictably in this age of media saturation, the situation was first disclosed via Twitter by a reporter who happened to be a passenger aboard ship on vacation.

The ship, Adventure of the Seas, was in port in the Bahamas. The affected passengers reportedly debarked in Freeport and took alternative transportation home.

CCL Stock Investors Follow Court News

Meanwhile, investors in CCL stock are trying to keep pace with court actions that affect their cruise line.

Just days after siding with the CDC against Florida, a federal appeals court reversed itself. The turnaround allows Florida to ban Carnival Cruise Lines (CCL) from following CDC rules that require passengers and other customers to show proof of vaccination against Covid-19 as a condition of sailing.

The 11th U.S. Circuit Court had previously said the CDC rules for preventing coronavirus outbreaks on ships could stay in place. That had temporarily trumped Florida rules that tried to bar the CDC safety measures.

Carnival and a number of other cruise lines start and end many cruises at Florida ports.

But the 11th U.S. Circuit Court has now reversed itself. The turnaround favors Florida over the CDC.

CCL Stock: Investors Mostly Happy

The 11th U.S. Circuit of Appeals reversal indicated that the CDC had failed to show that it has jurisdiction to impose the proof-of-vaccination rules. The CDC will likely address that issue in any additional appeal.

Separately, CCL stock investors were buoyed by recent news that Carnival Cruise Line, the world’s largest cruise line operator, plans to resume sailings on 54 ships in eight of its nine fleets by the end of 2021.

The individual cruise lines include Costa Cruises, Cunard, Holland America Line and Princess Cruises. The plans involve 65% of the fleets’ total capacity.

Nearly half of that capacity is aboard ships whose home ports are in the U.S.

Namesake Carnival Cruise Line, which has already restarted voyages with guests, plans to put its entire fleet back into service by the end of the year. Combined with the other lines’ actions, the steps would put 75% of the parent company’s total capacity back to work.

CCL Stock: Down 3.5% This Year

After pulling back as much as 37% from its June 8 high, Carnival shares have rebounded and are now up 5% year-to-date vs. an 19% gain by the S&P 500.

The pullback in CCL stock leaves shares 29% 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. Only recently have they started to resume.

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 19th out of 37 stocks in IBD’s Leisure-Services industry group, according to IBD’s Stock Checkup tool. The group itself ranks 115th vs. 73rd about two months ago, out of IBD’s 197 groups.

CCL stock has an IBD Composite Rating of 40, down from 45 in about a month. That means Carnival shares lag 60% 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 around 22.

It’s trading below its 50-day line and seeking support at its 200-day moving average.

Investors should consider stocks above their 50-day average.

Additional Technical Analysis On CCL Stock

CCL stock’s weak Relative Strength (RS) Rating of 73 out of a possible 99 is down from 83 last month. 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 indicates equal net selling and buying by institutional investors such as mutual funds.

Big backing by funds helps stocks break out.

As of June 30, 1,161 mutual funds held the stock, according to analysis by MarketSmith, according to data from MarketSmith. That’s up a shade from 1,121 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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