Carnival Cruises (CCL  ) opened 6% higher following its Q3 earnings report which was better than expected despite the company continuing to post big losses. However, shares quickly gave back these gains in ensuing trading sessions.

One clear, positive tailwind for Carnival is that the coronavirus situation is rapidly improving in the U.S. and across the world due to a combination of vaccinations and natural immunity. This is bringing us closer to the date when the world can return to normal, and Carnival's cruise ships can once again sail at full capacity.

However, in order to survive, Carnival had to take on massive amounts of debt which will likely constrain EPS growth and limit the stock's underperformance. This factor is becoming increasingly important as evidenced by the share price's lack of reaction to a decline in case counts whereas such a catalyst previously would send shares soaring.

Inside the Numbers

In Q3, Carnival posted a loss of $1.75 per share on revenue of $546 million. Both were significant improvements from a year ago when the majority of cruises were shutdown and on a sequential basis from a year ago.

However, investors are more concerned about the company's liquidity situation, cash holdings, bookings, and outlook for when cruising can fully resume. On these matters, the company was quite optimistic.

Carnival reported that 2022 bookings are running at higher rates than pre-pandemic. In terms of its liquidity situation, the company currently has $26 billion in debt. Prior to the pandemic, Carnival had $10 billion in debt.

However, there are some bright spots as the business was cash-flow positive in Q3 and for the full year. Additionally, 8 of its 9 cruise lines are currently in operation although running below full capacity.

Stock Price Outlook

The bullish case for Carnival is increasingly clear as the company has clearly survived and made it through the other end of the pandemic. Becoming cash flow positive and seeing the majority of its ships in operation are milestones and stepping stones for the company to return to pre-pandemic levels.

Another positive for Carnival is that they sold off many of their lower-priced ships and routes which mean that margins should be higher in coming years. While Carnival's stock has done little in 2021, this positive news could be setting the stock up for a year-end rally, especially if these trends continue the stock could post between $1 and $2 in EPS in 2022 and between $2 and $3 of EPS in 2023.