Faraday Research: It’s Plain Sailing For Carnival

Global cruise operator Carnival delivered a bullish earnings update on Tuesday, upping its full year EPS guidance by over 4%. Below, I take a closer look at the numbers and undertake a quick technical review of the stock.

Earnings Review

Advanced bookings for 2017 and average price well ahead versus the year prior as well as continued operational cost cutting were the key takeaways. 

On the back of this we saw a 148% rise in Q1 net income (versus Q1 2016) and management subsequently hike the quarterly dividend from 30cents to 35. Moreover, a review into travel operator peer TUI’s cruise division also reveals a bullish picture. 

Of course, it wasn’t all rainbows and butterflies for Carnival. Rising oil price and a strengthening dollar resulted in fuel costs jumping by 58% to $297m and this in turn saw Q2 EPS estimates fall below those delivered in Q2 2016.

That said, the increase in cruise demand and operational improvements undoubtedly takes precedent. 

Market Reaction

Of course, a review of what has happened is the easy part. Where next is what we all want to know and for this let’s bring up the daily candle chart.

The first thing to note is that prices have been locked in a well-established uptrend over the last 9-months. The absence of exponential range expansion and a series of steady retracements to trend offers a clear indication that this rally has legs. 

Focusing on more recent price action we note that following the Q1 update prices have since broken and held above a previous resistance level at ~4,750p. Notably, we also have evidence that this resistance level has now turned support. 

So is this a buying opportunity?

In short, no yet. Yes, we have a bullish fundamental backdrop and yes we have evidence that a new support level has formed. However, looking back highlights that prices closing above the upper Keltner Channel is few and far between.

With this in mind, we are waiting for another period of mean reversion and price consolidation before jumping on board. Of course, when we have this, Faraday Research members will be the first to hear about it.