Carnival (NYSE:CCL) has been virtually out of business for nearly two months. CCL stock is down almost 80% year-to-date.
I asked in March if the company could survive the storm. The company is trying to hold on until it can resume sailing, starting in August, so it is battening down the hatches.
That means raising cash, selling stock and cutting expenses to the bone.
For investors, it’s an interesting proposition. You can buy the stock now, paying May 15’s opening price of about $12.25 per share. That’s a market capitalization of $9.5 billion, less than six months’ normal revenue. This was a $50-per-share stock at the start of 2020.
Or you can let the bargain that is CCL stock pass you by, because the risk of bankruptcy that wipes out your position is still very real.
What Has Carnival Done?
Carnival has taken several actions to shore up a balance sheet that had just $1.4 billion in cash at the end of February. Even in that last quarter before disaster, it still lost $410 million in cash as it kept investing in new boats.
The most important move was to raise $5.75 billion in bonds, after the Federal Reserve dropped trillions into the economy in late March. This wasn’t technically a bailout, but it had the effect of one.
The cost was still extreme, a coupon of 11.5% on one issue, another $1.75 billion at 5.75% that could turn into stock. But Carnival was burning $1 billion per month. The interest rate being offered before the bailout was over 15%. Without the new issues, bankruptcy was certain.
Next, Carnival sold 43.5 million shares to Saudi Arabia’s sovereign wealth fund, one of several deals the oil kingdom did with troubled companies.
Finally, Carnival pruned its staff. It laid off 450 at its Southampton headquarters. These included the presidents of two of its cruise lines, Seabourn and Holland America, who will leave at the end of May. The remaining staff is taking a 20% pay cut through November.
The impact of this won’t be known for a month. The most recent Carnival earnings are for the quarter ending in February, before the virus hit. When it next reports earnings, analysts expect a loss of $1.25 per share and revenue of $3.85 billion. The company has also been slow-walking refunds, making credit on future cruises the default option for travelers.
Even if Carnival gets back to normal sailing in 2021, its results will not.
Is That Enough to Save CCL Stock?
Carnival ships like the Diamond Princess were at the heart of the pandemic. Both passengers and crew died. The ships were described by critics as “Petri dishes.” As Covid-19 spread, elites tweeted darkly of never cruising again. The loan package also burned goodwill, with TV analyst Jim Cramer hinting that it was political.
Demand was goosed by dropping prices. Just because some boats are sailing doesn’t mean profits are imminent.
The Bottom Line
If warm weather causes Covid-19 transmission to slow or cease, Carnival could be in good shape.
But if, as with the 1918 Spanish Flu, there’s a “monster wave” of new transmissions in the fall, Carnival may be dead in the water.
Carnival is the biggest cruise line. It has $6 billion in cash and new “partners,” including hedge funds that bought convertible loans and Saudi Arabia. Carnival says it has enough cash to get through November, even with zero revenue.
Many cruise ships have casinos on board. Once they get into open water the bells ring and the dice roll. Carnival is now that kind of stock. You can gamble on it, and you may win. You may also lose everything.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.