Carnival Earnings Preview: 2 Trades for CCL Stock

Cruise line operator Carnival Corp (CCL) has been a strong performer during the past year, with CCL stock up nearly 30% in that time. Following weeks of broad market-induced turmoil, Carnival stock has the opportunity to once again resume its former uptrend with this week’s third-quarter earnings report.

Carnival Corp. NYSE:CCLSentiment has a decidedly bullish slant, but as analyst reports show, CCL stock appears to deserve its current standing, providing opportunities for savvy options traders.

Diving into the numbers, Carnival is scheduled to release its third-quarter earnings report ahead of the open on Tuesday, Sept. 22. Currently, Wall Street is expecting the company to post a profit of $1.62 per share, up from earnings of $1.58 per share a year ago.

Historically, the firm has been a solid performer on the earnings stage, besting the consensus estimate in each of the past six reporting periods.

Not surprisingly, reports that some analysts may have set their targets a bit higher. Specifically, Carnival’s third-quarter whisper number arrives at $1.69 per share.

This bullish sentiment has spilled over into CCL stock’s ratings backdrop. In fact, the stock has attracted 12 “buy” ratings, compared to 10 “hold” ratings. However, there is plenty of wiggle room on the price target front, as the average 12-month price target of $55 rests a mere 4% above CCL’s price in early Monday trading.

Options traders are also leaning bullish when it comes to CCL. Specifically, the stock’s front-month put/call open interest ratio arrives at 0.62, with calls nearly doubling puts heading into Carinval’s earnings report.

A closer look reveals that peak call open interest totals 4,276 contracts at the overhead October $55 strike, while peak put open interest numbers just 1,687 contracts at the out-of-the-money $47 strike.

CCL 9-21-2015
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Overall, October implieds are pricing in a potential post-earnings move of about 3%. This places the upper bound at $54, while the lower bound resides at $52.

Technically, CCL stock is trading north of all its major trendlines, as well as potential support at $50. The only major hurdle left overhead is $55, which may cap the stock’s advances over the intermediate term.

2 Trades for CCL Stock

Call Spread: With solid fundamentals and technicals, the path of least resistance for CCL appears to be to the upside. Those traders looking to take a chance on CCL ahead of earnings might want to consider an October $50/$55 bull call spread.  

At last check, this spread was offered at $2.59, or $259 per pair of contracts. Breakeven lies at $52.59, while a maximum profit of $2.41, or $241 per pair of contracts, is possible if CCL stock closes at or above $55 when October options expire.

Put Sell: For more cautious traders, an out-of-the-money put may be just the way to bank a little profit while relying on technical support. At last check, the October $47 put was bid at 25 cents, or $25 per contract.  

As long as CCL trades above $47 through October expiration, traders will keep the premium received. If CCL trades below $47 ahead of expiration, however, traders could be assigned 100 shares of CCL stock for every put sold at a cost of $47 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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