When Carnival Corporation (NYSE:CCL) reported Q1 results, it seemed like there are multiple positives for CCL stock. Sustained growth in bookings and reduced cash burn are some factors worth mentioning.

However, Carnival stock didn’t respond as anticipated. The stock has continued to trend lower and has corrected by 41% so far in 2022.

Even after a meaningful correction, I would remain cautious. I believe that the stock is headed lower and will look attractive below $10 from the perspective of trading. I believe that CCL stock is not worth holding for the long term.

Headwinds Are Far from Over

The Covid-19 pandemic was the key factor that translated into plunging sentiments for the tourism industry. However, as of March, Carnival reported that 75% of the company’s capacity has resumed guest cruise operations. This has failed to cheer the markets for two reasons.

First and foremost, the global economy is in a phase of uncertainty. The headwinds to growth include inflation, rising interest rates and geopolitical tensions. With an expected recession in 2023, it seems likely that cruising activity will be impacted. The markets are discounting this concern.

Furthermore, Carnival emerged from the crisis. However, the balance sheet has been scarred. As of February, the company reported total debt of $34.9 billion.

Carnival reported a cash buffer of $6.9 billion as of March. In a recession scenario, the cash burn can be extended and imply further leveraging. The company had guided for positive adjusted EBITDA at the beginning of summer season. I believe that EBITDA is likely to turn red again in a recession scenario.

Even if there is no recession, Carnival will be burdened with high debt servicing cost for the next few years. This is not good news for equity holders.

Carnival is unlikely to repay debt. Instead, it will look for debt refinancing on existing debt maturity. The company has $11.1 billion in debt maturity through 2025. The challenge here is rising interest rates. If inflation persists, the company’s debt servicing cost can be potentially higher in the coming years.

Therefore, the balance sheet coupled with debt concerns have kept the stock subdued.

I would also add that crude has stubbornly traded above $100 per barrel. Even with recession concerns. Rising fuel cost is another factor that’s likely to impact key margins.

Positives That Will Keep Carnival Afloat

Carnival is faced with multiple challenges. However, I believe that the company is positioned to survive and expand in the long term.

Amidst the crisis, Carnival announced that the company will remove 22 smaller and less efficient ships. This is likely to have a positive impact on EBITDA margin.

Also, for the first quarter, Carnival indicated that the revenue per passenger cruise day was 7.5% higher than Q1 2019. The company reported operating cash flow of $5.3 billion in 2019.

Assuming a no-recession scenario and a Covid-19 endemic, Carnival is positioned to generate robust cash flows. Of course, the cash will be used in deleveraging. The key point is that Carnival has a troubled balance sheet, but will survive the challenging times.

For investors, there will be attractive trading opportunities. Sustained deleveraging and a deburdened balance sheet will make the stock attractive beyond the next few years.

Bottom Line for CCL Stock

Truist analyst C. Patrick Scholes believes that cruising prices are still lower as compared to rising food and fuel cost. With lowered expectations, Scholes has a price target of $15 for CCL stock.

However, I believe that the recession factor is yet to be discounted. If CCL stock trades at $10, I would consider taking positions for a 20% to 30% rally.

From a long-term investment perspective, it makes sense to wait and watch.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.