U.S. financial markets resumed their free fall to close out last week as coronavirus cases across the world continued to spike. The travel industry has been particularly hard hit, with cruise operators taking the brunt of the beating. Carnival Corp (NYSE:CCL) is one such casualty that has been weighed down by the COVID-19 outbreaks. CCL stock has lost more than 82% of its value over the past three months, but that decline is likely to continue in the weeks ahead.
Although there are certainly some potential catalysts in Carnival’s long-term future, getting there could be painful for investors. For now, the cruise company looks likely to remain buried under coronavirus-related issues for the foreseeable future making this one stock I wouldn’t touch.
Immediate Threat to CCL Stock
Carnival’s business is suffering right now as the firm has been forced to cancel all of its trips through mid-May to account for coronavirus risks. That will hurt the firm’s bottom line, especially as those cruises can’t be retroactively made up.
Retailers, for example, could see demand for their products spike following the coronavirus lockdowns. Unsold items can eventually be sold. But Carnival will never get these few weeks back, resulting in lost sales that can’t be made up.
Plus, Carnival probably won’t get any government assistance, which will make getting through this crisis even more difficult. In order to enjoy tax benefits, Carnival along with most of its peers are incorporated in foreign countries. That means they are able to duck out of corporate tax payments, saving them thousands each year. For that reason, the U.S. government bailout doesn’t extend to Carnival, which leaves them few choices to raise capital.
Carnival, the largest cruise operator of the bunch, did just that this week. The firm worked to raise $500 million through a common stock offering and $4 billion via a senior debt offering. Carnival also put $1.75 billion worth of convertible notes up for sale.
Cruise Industry Damage
But the immediate future isn’t the only thing Carnival should be fearing. The long-term future of the cruise industry is a big question mark right now as coronavirus changes the way people live. Once coronavirus lockdowns have been lifted, most expect social distancing measures to remain in place for quite some time. Plus, there’s worry that a second wave of COVID-19 could hit in the autumn or winter.
In the worst-case scenario, a second wave of coronavirus cases would cause more large-scale lockdowns around the world and force Carnival to cancel more of its planned trips. But even in the best-case scenario, things look bleak for Carnival.
People are unlikely to emerge from lockdown with coronavirus threats still hanging over their heads and jump on a cruise ship. There’s also speculation that the coronavirus pandemic will forever change the way people live, work and travel. The popularity of cruises will probably wane for some time regardless.
Plus, Carnival is going to be suffering from an image problem once the dust settles. Reports of horrifying conditions as people are trapped aboard cruise ships will be difficult for the public to forget. Carnival’s Holland America suffered a coronavirus outbreak in which four passengers died. Media reports referred to the cruise liner as a “death ship” as passengers pleaded to get off.
Cruise lines have been at the center of the coronavirus outbreak as several ships reported passengers falling ill with the virus. That in itself will be hard for Carnival to shake off — let alone the shocking accounts from passengers trapped on the Holland America ship.
The Bottom Line on Carnival
There’s no doubt that CCL stock is trading at a massive discount relative to its previous levels. But there’s good reason for that. Carnival has a long, bumpy road ahead — and that’s after the coronavirus has been contained around the world. There’s no telling how long it will take for the world to start returning to normal, Carnival will likely have to cancel more trips in the months ahead.
Buying a risky turnaround play in an uncertain market is like playing the lottery. For that reason, I’d stay on the sidelines when it comes to CCL stock.
Laura Hoy has a Finance degree from Duquesne University and has been writing about financial markets for the past 8 years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN. As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.