Carnival share price bull run fades after new dilution

Carnival (LON: CCL) share price pulled back sharply in the Asian session after the company decided to dilute its stockholders. The stock dropped to 717p, which is sharply lower than this week’s high of 783p. It is about 20% above the lowest level this year.

Carnival dilution

Carnival is the biggest cruiseline company in the world. It operates in a relatively concentrated industry where it competes with two other major companies: Royal Caribbean and Norwegian. 

Carnival share price has been in an upward trend this week as investors bet on the strong rebound of global travel. This also explains why other travel companies like Airbnb, Marriott, Booking, and TripAdvisor have rebounded recently. 

The stock retreated sharply after the company announced that it was offering new shares worth $1 billion. The firm will issued new 15 million shares priced in at $9.95. The firm hopes to use these funds for general operations and addressing the upcoming debt maturities. 

Investors hate new share offerings since they dilute their holdings by increasing the number of holders. It is actually the opposite of share repurchases, which reduce the share count and increase the earnings per share.

Carnival share price has also struggled in the past few months because of the rising inflation and interest rates. Analysts believe that high inflation will push more people to focus on basic items like food and accommodation. 

On the other hand, high interest rates are bad for Carnival, a company that borrowed heavily during the pandemic. Indeed, the loss-making company saw its total debt soar to more than $31 billion. Of these, it has short-term debts of more than $3 billion.

This leverage explains why Morgan Stanley recently lowered their estimate for the stock from $7 to $0. That implied that the company could file for bankruptcy. This is highly unlikely since the company’s occupancy has been rising in the past few weeks. 

Carnival share price forecast

The daily chart shows that the CCL share price has rebounded in the past few weeks as investors bet on the company’s rebound. However, the stock has struggled to move above the 50-day and 50-day moving averages.

The stock has also failed to cross the important psychological level at 800p. The Relative Strength Index (RSI) has remained at about 50. Therefore, the shares will likely keep falling as sellers target the next key support level at 600p.

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