Carnival: Not Just Yet
Trevellyan Ward | Mar 30, 2017 12:34PM ET
Global cruise operator Carnival (NYSE:CCL) 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.h3 Earnings Review/h3
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 hiked the quarterly dividend from 30 cents to 35. Moreover, a review of travel operator TUI's cruise division also reveals a bullish picture.
Of course, it wasn’t all rainbows and butterflies for Carnival. Rising oil prices and a strengthening dollar resulted in fuel costs jumping by 58% to $297m, which 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.
h3 Market Reaction/h3Of course, a review of what has happened is the easy part. What's 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 broken and held above a previous resistance level at ~4,750p. Notably, we also have evidence that this resistance level has now turned support.
h3 Buying Opportunity?/h3In 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 periods when prices close above the upper Keltner Channel are few and far between.
That said, we are waiting for another period of mean reversion and price consolidation before jumping on board.
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