Carnival’s stock leaps after analyst urges investors buy ahead of earnings

Woronka reiterated the longer-term hold rating he’s had on Carnival for at least the past three years, but said he believed the stock was a “short-term” buy.

“The company reports [fiscal first-quarter] results premarket on Monday, March 27, and we believe the report is likely to elicit a positive reacting from the stock, based primarily on weakening sentiment heading into the prints, as well as what we believe to be a low bar for [Carnival’s] outlook for the remainder of [fiscal 2023],” Woronka wrote in a note to clients.

The stock has rallied 8.9% year-to-date, but has tumbled 28% since closing at an eight-month high of $12.19 on Feb. 7. In comparison, the S&P 500 index
SPX,
+0.89%
has tacked on 2.8% this year, but has dropped 5.2% since Feb. 7.

Woronka said investors may be concerned about possible deceleration in consumer spending if the economy slows further, but he believes leisure travel should remain one of the more resilient subsectors of the larger consumer discretionary sector.

More specifically, he expects cruising to remain “a favored category,” given how fundamentals have improved to “something more in the ballpark of fair to full earnings power” in 2023 from “under-earning” in 2022.

Carnival reports results for its quarter through February before the market opens on March 27. The average estimates for analysts surveyed by FactSet are for per-share losses to narrow to 60 cents from $1.65 a year ago and for revenue to jump to $4.32 billion from $1.62 billion.

Wall Street lowered its expectations for Carnival the past few months, as the FactSet consensus for losses has widened from 57 cents a share at the end of December, and for revenue has declined from $3.44 billion.

The skepticism is understandable, as Carnival reported a narrower-than-expected loss for the fourth quarter, but wider losses the previous eight quarters, while revenue has been below analyst projections for 11 straight quarters.

Another reason for Woronka’s “catalyst call buy” is that a recent decline in oil prices should be “disproportionately beneficial” to Carnival, because the company does not hedge its fuel exposure. And crude-oil futures
CL00,
-0.07%
have tumbled 16.9% year-to-date, and were threatening to close Monday at a 2 ½-year low.

Don’t miss: Futures Movers: Oil prices extend their decline after biggest weekly drop of 2023.