Carnival Could Be Setting Sail Toward A Contrarian Comeback - Carnival (NYSE:CCL)

Rivals generally don't provide aid to each other, although in an indirect way, cruise ship operator Carnival Corp CCL may be on the cusp of receiving residual benefits from its key competitor. Just recently, Royal Caribbean Cruises RCL posted its first-quarter fiscal 2025 earnings report and overall, the results were quite encouraging. It may be just what the CCL stock needs to find its footing following a rough outing so far this year.

On the top line, Royal Caribbean posted $4 billion, implying sales growth of 7.2% on a year-over-year basis. This figure only marginally missed the analysts' consensus target of $4.01 billion — not a bad showing considering the deflated macro environment, particularly in terms of consumer sentiment. Notably, passenger ticket revenues rose 7.9% year-on-year to $2.74 billion, while cruise operating expenses ticked up to $2.07 billion from $2.05 billion a year ago.

Royal Caribbean CEO Jason Liberty remarked that the company is navigating "the complexities of the current macroeconomic landscape" while implementing solutions to optimize revenue and manage costs.

Following the disclosure, RCL popped sharply higher during the premarket session. However, in the early hours of the open market session, the equity was volatile. Nevertheless, the core fundamental argument is that Royal's results may be signifying a return of consumer demand along with pricing power in the cruise industry.

Looking At The True Demand Profile Of CCL Stock

While the recent headlines deliver much-needed encouragement for Carnival investors, the reality is that it's one piece of a much bigger puzzle. At the most elemental level, the market makes a decision for any given time period whether to be a net buyer of CCL stock or not. This impetus, the trigger to transition from an observer to a buyer, is demand.

What makes demand such a compelling statistic is its binary nature. Unlike price, which is a continuous scalar signal (meaning that it theoretically extends into infinity), demand has boundaries. Demand is defined or discrete. By logical deduction, demand is either happening or it's not happening — there are no half-demand states.

Thanks to this fundamental attribute, demand represents one of the few metrics that can be meaningfully measured across sentiment regimes. In other words, prices often change over decades but the impetus to buy (or not to buy) largely remains the same: when a security is purchased, it's reasonable to assume that whatever was contextually meaningful at the point of transaction triggered the greed component of the fear-greed spectrum.

Using Markovian principles of probabilistic logic, these demand triggers can be quantified and categorized for empirical analysis. Specific to CCL stock, the security printed in the past 10 weeks a "4-6" sequence: four up weeks interspersed with six down weeks, with a negative trajectory across the period.

Generally, when this sequence flashes, the odds of upside success in the subsequent week (which corresponds with the business week beginning April 28) is around 55.1%, giving the bulls a slight edge. No, it's not a game-changing shift in the probabilities. However, in the prior 30 weeks leading up to the last-10-week period, the demand profile was up week dominant, 18 weeks up to 12 weeks down.

In other words, the last 10 weeks, with their bearishly dominated profile, may have been a brief corrective spell. Moving forward, it's quite possible that the bulls may attempt to take control.

Strategizing for the Potential Upswing

Forecasting isn't an exact science obviously. That said, based on empirical data projected forward, there's a possibility that CCL stock can drive above the $19.40 level, perhaps touch $19.50 over the next two to three weeks. With that in mind, the most aggressive multi-leg options strategy arguably available that's within the realm of rationality is the 18.50/19.50 bull call spread expiring May 16.

The above transaction involves buying the $18.50 call and simultaneously selling the $19.50 call, for a net debit paid of $50. Should CCL stock rise through the short strike price at expiration, the maximum reward stands at $50, a nice payout of 100%.

What makes this option strategy particularly sweet is twofold. First, the high payout implies that the market makers believe the odds of success are unfavorable. Nevertheless, the actual demand profile and empirical probabilities suggest otherwise. Second, implied volatility is several ticks lower than historic volatility, suggesting a lower overall premium to cover the risk of unexpected kinesis.

Bottom line? Wall Street right now appears to be discounting the idea that CCL stock can recover. This can be an intriguing contrarian opportunity, especially because it's offered at a relative discount.

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