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For Carnival Stock, Waters Remain Choppy

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·4 min read
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A few months back, it seemed like it would be smooth sailing for Carnival (CCL) stock in 2021. Thanks to the vaccine rollout in the United States, investors bid up shares in the cruise line operator. That took place even as concerns such as ballooning debt, and an uncertain recovery timeline, called its valuation into question.

Lately, the waters have become choppier. Shares took a dive in early July, as fears about the Delta variant of COVID-19 began to mount. Carnival stock has since begun to recover, as the company remains set to return its full fleet to service by year’s end.

Yet, whether or not the Delta variant causes a repeat of last year’s social distancing, there’s another issue: Carnival's valuation remains overly optimistic. For today’s valuation to make sense, the company has to return to profitability much sooner than analysts anticipate.

In short, barring the “reopening trade” making a comeback, investors may continue to take a cautious approach from here with Carnival stock. (See Carnival stock charts on TipRanks)

Will Recent Variant Worries Continue to Affect the CCL Stock Recovery?

With the Delta variant starting to become a serious issue in the U.S., investors are cooling back big time on the “reopening” trade. Other cruise stocks, like Royal Caribbean (RCL), have experienced major pullbacks in recent weeks. So have other travel plays, such as airline stocks.

Are investors on the mark as they start discounting this sector once again? Or is the shift in sentiment giving those who missed the first “reopening” trade rally an opportunity to dive into names like CCL stock at a solid entry point? Many would recommend going with the former.

Yes, Carnival’s reopening plans may not yet be on hold. However, a recent court decision signals that, if needed, the Centers for Disease Control (CDC) will have no issue reinstating the previous “no sail” orders. If the Delta variant were to become a serious issue in the U.S., cruises could come to a screeching halt.

Even if the Delta variant doesn’t result in a new round of restrictions, the other factors of lesser concern with investors earlier this year could again become top of mind.

Even if Delta Worries Subside, Other Risks Remain

The latest developments with the pandemic may or may not mean more challenges ahead for the cruise line operator. Even assuming that recent concerns are overblown, there are other factors that limit the ability of CCL stock to rally in the months ahead.

For one, Carnival’s management may talk of booming demand. The flip side to this demand is the significant discounts the company offered to passengers in order to get them back out at sea. Discounted prices means it’s still questionable when Carnival will get out of the red.

Furthermore, Carnival is still priced as if it’s going to hit the top end of analyst estimates in 2022. Shares could pull back, or at least fail to rebound further, if results in the upcoming quarters fall short of expectations.

Even if profitability occurs sooner than expected, this may not translate into a higher price for CCL stock, either. Concerns about the company’s high debt, and its ability to repay it, could weigh down on it as well. Put it all together, and it may be a while before shares climb back above $30 per share.

What Analysts are Saying About CCL Stock

According to TipRanks, CCL stock has a consensus rating of Hold. Out of 9 analyst ratings, 4 rate it a Buy, 2 analysts rate it a Hold, and 3 analysts rate it a Sell.

As for price targets, the average Carnival price target is $29.57 per share, implying around 27.7% in upside from today’s prices. Analyst price targets range from a low of $18 per share, to a high of $39 per share.

Bottom Line: Variant or No Variant, it’s Anything But ‘Smooth Sailing’ for Carnival Stock

Recent Delta variant news has again knocked down CCL stock. Only time will tell whether this recent resurgence of the pandemic will result in the CDC returning to “no sail” orders.

Yet, even if it’s still “full steam ahead” for cruise ships out of U.S. ports, other factors such as valuation and debt could affect its performance. In the coming months, few investors may decide to buy the dip in Carnival stock.

Disclosure: Thomas Niel held no position in any of the stocks mentioned in this article at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.