Option Trade 
Carnival Corp (NYSE:CCL) Calls 
Monday, March 27, 2017

** OPTION TRADE: Buy the CCL JULY 21 2017 60.000 call at approximately $2.00. Place a pre-determined sell at $4.00.

Note: No protective stop losses added -- but if you wish to do so make it $0.80.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

by Ian Harvey   

Carnival Corp (NYSE:CCL), a cruise company, is expected to report its first-quarter numbers before the market open on March 28. Analysts expect the company to post earnings of $0.35 per share on revenue of $3.78 billion, versus $0.39 on sales of $3.65 billion during the same period last year.

CCL has been trending steadily higher since August, and the stock is now trading just pennies below its all-time high.

Even with the stock at its all-time high, the valuation remains OK, with a P/E of just 15.8, and forecast earnings growth of 4.3% this year, and 15.3% in 2018.

Improvements in the overall economy, and in particular the jobs market, are expected to benefit the overall travel and tourism sector, which is a primary reason why CCL has been so strong in recent months.

The company has an excellent earnings track record, with better than expected earnings in each of the last 15 quarters. Revenues have also been good, with in-line or better sales numbers for four straight quarters.

The stock has risen 13.1% on the year.

Carnival Corp has a market capitalization of $42.54 billion, a PE ratio of 15.75 and a beta of 0.73. Carnival Corp has a 52-week low of $42.94 and a 52-week high of $59.12. The company has a 50 day moving average of $56.49 and a 200 day moving average of $51.86.

Influencing Factors to Consider               

Along with the fiscal fourth-quarter 2016 results, the company had issued a guidance range of 31 cents to 35 cents for adjusted earnings per share in the fiscal first quarter of 2017. The company had factored in year-over-year growth in net revenue yields (constant dollars) in the band of 1.5-2.5% and roughly the same range increase in net cruise costs, while projecting its earnings per share.

In the fiscal third quarter, the company had launched the initial phase of its yield management system, which is expected to aid in driving incremental revenue yields 2017 onwards. In addition, Carnival predicts revenue yields to continue improving on the back of marketing initiatives and a better booking environment.

Wall Street has a whisper number for the quarter of $0.37, which is two pennies above the consensus.

Carnival's strategy to grow beyond its familiar itineraries and capitalize on new markets bodes well. Also, the company is confident about its fiscal first-quarter results to reflect growth in the Asian and Australian markets as well as expansion in relatively other untapped markets.

Further, the launch of several new ships in a bid to form additional demand creation opportunities, bodes well for top-line growth.

Moreover, the company remains focused on its cost-containment efforts, including decreased fuel consumption, which are likely to aid the quarter's margins.

Analysts and Hedge Funds Opinions

Carnival Corp stock received an upgrade by Wells Fargo & Co from Market Perform to Outperform.

Also, Carnival Corp was upgraded by Zacks Investment Research from a “sell” rating to a “hold” rating in a report issued on Monday.

According to Zacks, “Carnival shares have outpaced the Zacks classified Leisure & Recreation Services industry in the past year. Given an expected increase in cruise travel throughout 2017, addition of new ships to its fleet bodes well. Carnival believes that it is well positioned for continued earnings growth, given the current strength in its bookings along with pricing trends for the year. Its strategy of growing beyond familiar itineraries and capitalizing on fast growing markets also bodes well. New onboard product offerings and strategic initiatives are expected to drive onboard yield gains. Cost containment efforts like lower fuel consumption could also aid profits. Estimates have been stable ahead of Carnival’s fiscal first quarter 2017 earnings release. It has a positive record of earnings surprises in the last four quarters. Yet, adverse forex translations, macroeconomic issues in key operating regions and increasing fuel costs remain headwinds.”

A number of other analysts have also recently commented on MU…..

  •     3/20/2017-William Blair Upgrade from a “Market Perform” rating to an ”Outperform” rating.
  •     2/27/2017-Argus Upgrade from a “Hold” rating to a ”Buy” rating.
  •     1/10/2017-Wedbush Reiterated Rating of Neutral.
  •     12/23/2016-Deutsche Bank AG Reiterated Rating of Hold.
  •     12/21/2016-Barclays PLC Reiterated Rating of Equal Weight.
  •     12/21/2016-Credit Suisse Group AG Reiterated Rating of Outperform.

One analyst has rated the stock with a sell rating, eight have given a hold rating and fifteen have issued a buy rating to the company. The stock currently has an average rating of “Buy” and a consensus price target of $58.60.

Harvey’s Options Volatility Indicator


With the low valuation, there is still plenty of upside potential as long as the company is able to extend its streak of earnings beats.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

 ** OPTION TRADE: Buy the CCL JULY 21 2017 60.000 call at approximately $2.00. Place a pre-determined sell at $4.00.

Note: No protective stop losses added -- but if you wish to do so make it $0.80.


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