Carnival (CCL – Free Report) has been one of the most searched stocks on Zacks.com recently. So you might want to look at some of the facts that could shape stock performance in the near term.
Shares of this cruise operator have returned -17% over the past month versus a -5.1% change in the Zacks S&P 500 Composite. The Zacks Leisure and Recreation Services industry, to which Carnival belongs, has lost 10.6% over the period. Now the main question is: Where can the stock be headed in the short term?
Although media reports or rumors of a significant change in a company’s business prospects usually cause its stock to trend and lead to an immediate price change, there are always some underlying factors that ultimately drive the purchase decision and holding.
Earnings valuation reviews
Here at Zacks, we prioritize evaluating the change in a company’s future earnings projection above anything else. This is because we believe that the present value of its future earnings stream is what determines the fair value for its stock.
Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings estimates to take into account the latest business trends. When earnings estimates for a company increase, so does the fair value for its stock. And when the fair value of a stock is higher than the current market price, investors tend to buy the stock, resulting in an increase in its price. Because of this, empirical studies show a strong relationship between trends in earnings estimate revisions and short-term stock price movements.
For the current quarter, Carnival is expected to post a loss of $0.79 per share, indicating a change of +54.1% from the year-ago quarter. The Zacks Consensus Estimate has changed -229.2% over the past 30 days.
The consensus revenue estimate of -$4.58 for the current fiscal year indicates a year-over-year change of +35.1%. This estimate has changed -22.9% over the last 30 days.
For the next fiscal year, the consensus earnings estimate of $0.37 represents a change of +108% from what Carnival is expected to report a year ago. Over the past month, the rating has changed -50.1%.
With a strong externally audited track record, our proprietary stock rating tool, Zacks Rank, provides a more definitive view of a stock’s near-term price direction as it effectively leverages the power of profit estimation. Due to the size of the recent change in consensus estimate, along with three other factors related to earnings estimates, Carnival is assigned a Zacks Rank #3 (Hold).
The chart below shows the evolution of the company’s forward 12-month consensus EPS estimate:
EPS 12 months
Revenue growth forecast
Although a company’s earnings growth is arguably the best indicator of its financial health, nothing much happens if it can’t grow its revenue. It is almost impossible for a company to increase its profits without increasing its revenue for long periods. Therefore, knowing a company’s potential revenue growth is essential.
In Carnival’s case, the consensus sales estimate of $4.1 billion for the current quarter represents a year-over-year change of +218.9%. Estimates of $12.52 billion and $21.37 billion for the current and next fiscal year show changes of +555.8% and +70.7%, respectively.
The latest results reported and the history of surprises
Carnival reported revenue of $4.31 billion in its last reported quarter, representing a year-over-year change of +688.5%. EPS of -$0.58 for the same period compares to -$1.75 a year ago.
Compared to the Zacks Consensus Estimate of $4.95 billion, the reported revenue represents a -13.04% surprise. EPS surprise was -383.33%.
The company failed to beat consensus EPS estimates in any of the last four quarters. The company failed to beat consensus revenue estimates in any of the last four quarters.
ASSESSMENT
Without considering a stock’s valuation, no investment decision can be efficient. In predicting a stock’s future price performance, it is essential to determine whether its current price accurately reflects the intrinsic value of the company’s underlying business and growth prospects.
While comparing the current values of a company’s valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), to its own values. Historical values help determine whether its stock is fairly valued, overvalued or undervalued, comparing the company in relation to its peers on these parameters gives a good understanding of the reasonableness of the share price.
The Zacks Value Style Score (part of the Zacks Style Score system), which considers both traditional and unconventional valuation metrics to rank stocks from A to F (an A is better than a B ; a B is better than a C; and so on), is quite useful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.
Carnival is rated F on this front, indicating that it is being marketed at a premium to its peers. Click here to see the values of some of the evaluation metrics that drove this grade.
Conclusion
The facts discussed here and much other information on Zacks.com can help determine whether or not the market hype surrounding Carnival is worth paying attention to. However, its Zacks Rank #3 suggests it may perform in line with the broader market in the near term.
