Carnival stock jumps 2.7% a week after Deutsche Bank analyst's recommendation

After Deutsche Bank analyst Chris Woronka made a short-term recommendation to buy, shares of Carnival Corp. went up Monday, a week after the cruise operator reported fiscal first-quarter results.

Carnival's stock CCL bounced 2.7% in midday trading after closing at a 2 month low on Friday. The shares of Norwegian Cruise Line Holdings Ltd. NCLH fell 0.7% after news that its chief executive officer was stepping down, and the shares of Royal Caribbean Group RCL went up 0.6%.

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

The company reported its first-quarter results on Monday, March 27 and we believe that the report will elicit a positive reaction from the stock, based on weak 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, according to a note to clients.

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

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

He expects cruising to remain a favorite 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 reported its results for the quarter through February before the market opens on March 27th. Per-share losses fell to 60 cents from $1.65 a year ago and revenue to $4.32 billion from $1.62 billion, according to analysts surveyed by FactSet.

Wall Street lowered its expectations for Carnival over the past few months, as the FactSet consensus for losses has widened from 57 cents a share at the end of December, and 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 CL 00, have fallen 16.9% year-to-date, and were threatening to close Monday at a 2 year low.

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