Cruise operator Carnival Corp. ( CCL ) will report second-quarter results before the market opens on June 22. The consensus calls for earnings of $0.47 per share, down from $0.49 during the same period last year. The stock has gained 24.9% on the year.
CCL was recently trading at $65.14, down $1.34 from its 12-month high and $22.20 above its 12-month low. Technical indicators for CCL are bullish and the stock is in a strong upward trend. The stock has recent support above $62.75 and has broken through recent resistance. Of the 15 analysts who cover the stock, eight rate it a "strong buy", six rate it a "hold", and one rates it a "strong sell". The stock receives S&P Capital IQ's 3 STARS "Hold" ranking.
CCL shares have been strong over the last year, as improvements in the overall economy, in particular the labor market, should keep demand high for travel and tourism companies. CCL has done a great job in recent years growing its earnings, with annual earnings up 33.0% per annum over the last five years, and analysts see additional annual earnings growth of 14.1% over the next five years. The consensus calls for Q2 earnings to drop from $0.49 last year to $0.47 this year, but the street has a higher whisper number of $0.50 for the quarter. The stock has a low valuation, with a P/E of 16.1, so there is plenty of upside potential as long as the company is able to hit its estimates. The company has a strong track record of posting better than expected results, and has not posted a negative earnings surprise since the fourth-quarter 2010. As long as the company is able to post another solid set of quarterly numbers the stock should move higher following the report.
Stock Only Trade
If you're looking to establish a long stock position in CCL, consider buying the stock under $65.00. Sell if it falls below $58.50 or take profits if it gets to $74.75.
If you want a bullish hedged trade on the stock, consider an October 52.50/57.50 bull-put credit spread for a 45-cent credit. That's a potential 9.9% return (28.7% annualized*) and the stock would have to fall 11.0% to cause a problem.
If you are looking for a bearish hedged option trade on CCL, consider an October 75/80 bear-call credit spread for a 25-cent credit. That's a potential 5.3% return (15.3% annualized*) and the stock would have to climb 15.5% to cause a problem.
Covered Call Trade
If you like the stock, but wish to lower your cost basis on a new position, you may want to consider an October $65.00 covered call. Buy CCL shares (typically 100 shares, scale as appropriate), while selling the October $65.00 call for a debit of $61.70 per share. The trade has a target assigned return 5.3%, and a target annualized return of 15.4% (for comparison purposes only).