Carnival's stock rallies to reverse almost all of its 'perplexing' post-earnings selloff

By Tomi Kilgore

The stock's selloff on Monday, which came despite a strong earnings report, appeared to be a 'sell the news' reaction after a recent run-up

Shares of Carnival Corp. leapt Tuesday, taking back nearly everything they had lost in the previous session's "perplexing" post-earnings sell-off.

On Monday, the cruise operator (CCL) reported a narrower-than-expected fiscal second-quarter loss and revenue that more than doubled to a second-quarter record. It also raised its full-year outlook.

Chief Executive Officer Josh Weinstein said on the post-earnings conference call that revenue had "reached a meaningful inflection point" amid strong demand, according to a transcript provided by AlphaSense.

And yet the stock dropped 7.6% to close at $14.60 on Monday, with a number of analysts suggesting investors cashed in when they got the news of the strong results they had been expecting. The stock had been up 41% in June before the results were released.

Stifel Nicolaus analyst Steven Wieczynski responded to Monday's sell-off by asking in a tongue-in-cheek way whether investors had actually listened to what Carnival was saying.

"We fully understand a sell-the-news type of day, but [Monday's] steep negative reaction really is perplexing," Wieczynski wrote in a note to clients distributed on Tuesday.

He said he believed that once "rational heads eventually prevail," the stock would starting rising again, and he reiterated the buy rating he's had on the stock for at least the past three years.

On cue, the stock jumped 7.5% in afternoon trading Tuesday to recover nearly everything it lost on Monday.

"Call us crazy, but we are actually increasing our price target to $20" from $18, Wieczynski wrote.

The new target made Wieczynski the most bullish on Carnival of the 23 analysts surveyed by FactSet who cover the cruise operator. The target implied about 22% upside from current prices.

JPMorgan's Matthew Boss reiterated the overweight rating he's had since he upgraded Carnival from neutral on June 12, while keeping his stock-price target at $16.

Boss highlighted management's citing of "tremendous" booking volumes that were "gaining momentum with favorable pricing trends," which helps provide the company with the highest visibility to one year out in its history.

Shares of Carnival's rivals also rallied on Tuesday after taking a hit on Monday. Royal Caribbean Group's (RCL) stock shot up 3.8% toward its highest close since February 2020 after slipping 0.7% on Monday, while Norwegian Cruise Line Holdings Ltd. (NCLH) shares rallied 4.8% after sliding 4.5% on Monday.

In comparison, the S&P 500 tacked on 1.2% on Tuesday.

-Tomi Kilgore

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

06-27-23 1521ET

Copyright (c) 2023 Dow Jones & Company, Inc.