It appears that Carnival Cruise Lines (NYSE:CCL) will manage to stay afloat despite the new coronavirus pandemic. In late March, the company announced a series of painful but necessary steps, to ensure that it could meet its liabilities. And that appears to be putting a floor under CCL stock.
The company is in the process of raising $6 billion of debt and equity. To accomplish that, Carnival “has commenced private offerings of $3 billion aggregate principal amount of first-priority senior secured notes.” In addition, the company plans to raise an additional $1.75 billion of senior convertible notes. Both sets of notes will be due in 2023.
The company also registered for a public offering of common stock that will raise $1.25 billion. And it will suspend its dividend.
Usually when a company takes steps like that, including those that dilute its existing shares, its stock plummets. However, CCL stock has rallied nearly 50% since the beginning of April.
So even though Carnival’s Diamond Princess ship became synonymous with the coronavirus, the steps taken by the company have allowed it to metaphorically kick the can down the road until next year.
But the company has suggested that it may have to look into raising more capital in 2021. Indeed, regardless of how soon the cruise lines get back to sailing, it is nearly certain that Carnival and the other cruise lines will have to raise additional capital.
Is it time for investors to dip their toes back in the water with CCL stock? Maybe.
The Demand Picture Is Not Clear
It’s hard to predict what will happen when the cruise lines can sail again. I came across a TravelPulse survey recently in which 57% of respondents said they would not take a cruise for at least a year.
However, it is not clear from the survey results if those interviewed were cruise fans to begin with. It’s one thing for people who have never taken a cruise to say they wouldn’t take one. It’s another thing entirely if a large percentage of the respondents are frequent cruisers.
I also came across this interesting fact: Before the word coronavirus became part of our vocabulary, many people called cruise ships “floating petri dishes.” But none of the 50 largest outbreaks of the coronavirus have occurred on a cruise ship.
And you have to believe that when cruise ships do set sail, they will have strict protocols in place and be held to the highest standards. In that way, like getting on an airplane after 9/11, a cruise ship may be among the safest places to be.
CCL Stock May Be the Tallest of the Seven Dwarfs
Every cruise line is prohibited from sailing before July 1. And many industry experts suspect it may be longer than that before the CDC gives cruise ships the green light to set sail. Carnival can cut costs to the bone and nothing much will change until there it generates more revenue. And when that will occur is anybody’s guess.
Thomas Niel, another InvestorPlace columnist, wrote that Carnival may have more liquidity than the other cruise lines, Royal Caribbean (NYSE:RCL) and Norwegian Cruise Line (NYSE:NCLH). Based on the steps Carnival has taken, J.P. Morgan analysts estimate that it may be able to last the longest of the three without any revenue. Other analysts disagree. And in the end,for investors, it doesn’t really matter.
That’s because it appears that Carnival will be able to avoid bankruptcy. That means the stock won’t go to $0. But is it worth buying? If you’re willing to take on the risk that the stock still poses, and if you’re willing to hold the shares for the long-term, then CCL stock may be a good investment.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
