Carnival share price forecast amid existential going concern risks

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Carnival (NYSE: CCL) share price has collapsed this year even as business conditions improve. The stock was trading at $6.64 on Wednesday, which was the lowest level since 1992. It has plunged by more than 90% from its highest level in 2017.

Going concerns issues for Carnival

Carnival, the world’s biggest cruise company, has been in trouble as interest rates rise internationally. The same is true for other companies like Royal Caribbean and Norwegian. Their stock prices have all crashed this year.

Transport and services business conditions have improved gradually. In a statement, Carnival said that its occupancy rates surged to 84% for the quarter ended to August. This happened as demand rose and the company continued offering discounts. 

In addition, countries in its key markets have relaxed their Covid testing and masking mandates. As a result, the number of people taking cruise vacations has continued to increase. 

Still, the company faces numerous challenges. First, there is the fact that inflation has increased substantially in the past few months. In the US, recent data showed that inflation has risen to the highest level in almost four decades. As such, according to Jefferies, most cruise enthusiasts are uncomfortable with higher prices.

Second, the company is facing a significant going concern risk as interest rates rise. In the past few years, the company’s long-term debt has surged from over $7 billion in 2017 to over $28 billion. Short-term borrowings have risen from $485 million to over $2.6 billion. This leverage is substantial for a company that has a market cap of over $7.9 billion and $7 billion in cash.

On a positive side, the net cash segment is important since the company can comfortably cover its short-term borrowings. Still, with interest rates rising, Carnival will need to spend more to pay its debt. Its interest expense rose from $198 million to over $1.5 billion. This is a substantial amount since it had a revenue of over $1.9 billion.

Carnival share price forecast

Carnival stock price chart

The daily chart shows that the CCL share price has been in a strong bearish trend in the past few months. It moved below the important support level at $8.16, which was the lowest level on June 30. It moved below all moving averages while the MACD has moved below the neutral point. 

Therefore, the outlook for the stock is bearish, with the next key level to watch being $5. The stop-loss for this trend will be at $8.24.

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