Why Royal Caribbean Stock Dropped, Then Popped
Key Points
Carnival Corporation beat on earnings today, but missed on guidance.
Investors initially worried this might be bad news for Royal Caribbean stock -- then reconsidered.
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Royal Caribbean (NYSE: RCL) stock tumbled nearly 10% in early trading this morning -- then made it all back. As of 1 p.m. ET, Royal Caribbean stock is trading almost exactly where it closed last night -- $309 per share. So why the sudden sell-off before investors changed their mind?
Well, you can blame Carnival Corporation (NYSE: CCL) for that.
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Image source: Getty Images.
Carnival Corporation earnings
Despite being only half Royal Caribbean's size by market capitalization, rival Carnival Corporation boasts annual revenues ($27 billion), 50% higher than Royal Caribbean's ($18.4 billion). So it's still considered something of a bellwether for cruise stocks. Accordingly, when Carnival reports bad earnings, investors may be tempted to take out their wrath on Royal Caribbean stock as well.
But here's the strange thing: Carnival reported earnings this morning... and the news wasn't bad.
Q2 adjusted earnings of $0.41 per share beat analyst forecasts, as did quarterly revenue of $6.7 billion. Revenue set a new record for Carnival, and earnings were up 20% year over year.
What's next for Royal Caribbean
All that said, Carnival did warn investors that its earnings this year might come in a bit light. Analysts were looking for Carnival to earn $1.42 per share (adjusted) in Q3, but Carnival promised only $1.35. Through the end of the year, guidance for $2.22 per share may create a narrower miss; Wall Street only needs to see $2.23 for the year.
Presumably, this is the thing that spooked Royal Caribbean investors this morning: the worry that if Carnival's going to underperform this year, then Royal Caribbean might, too. Q4's still a ways away, however, and if the worst Carnival's going to do is miss by one penny... maybe Royal Caribbean investors don't have much to worry about after all.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.
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