After rallying more than 220% from the March low to the recent high, Carnival Cruise (NYSE:CCL) is losing momentum. One could argue that that’s par for the course given its stellar rise. Others could say that CCL stock is not a buy based on its bumpy outlook.
On Monday June 22, Carnival shares fell 3.3% as the company said it will extend its North American cruise suspension until Sept. 30. The move followed a similar action taken by Norwegian Cruise Line (NYSE:NCLH) a week ago.
Not long ago, shares were rallying as Carnival showed a spike in demand for late-summer sailings, which will obviously be a no-go after the recent extension. While Carnival took necessary action to boost its liquidity and shape up the balance sheet, it’s still exposed to rising novel coronavirus numbers.
The Virus Is Spreading
The S&P 500 topped in mid-February and bottomed in mid-March, as a bevy of lockdowns began to sweep through the U.S. In many states, those lockdowns have been lifted, while others phase back into normalcy.
Unfortunately, there have been many states that were too anxious to get back to reality, setting off a chain reaction of Covid-19 growth. Admittedly, as we get back into our pre-coronavirus routines, there will inevitably be an increase in cases. Unfortunately, we cannot lock up our economy for quarters on end in an effort to contain the coronavirus.
Further, the increasing number of testing should result in a higher case count of Covid-19. That said, in some areas of the country — like Florida, Texas, Arizona and California — the numbers are spiking in dramatic fashion.
That’s going to trigger a lot of debate, both between the public and politicians. I wish to sidestep that debate and instead focus on how that will impact the stock market and its various components.
For cruise stocks, that effect won’t be good. We’re already seeing Carnival postpone its North American sailings and a further postponement will only hurt its financial results even more.
It doesn’t seem like the government — at the federal or state level — really wants to go back to a lockdown state. That may keep businesses open and avoid the type of financial impact we saw this quarter. Although, some companies like Apple (NASDAQ:AAPL) are already taking their own steps.
In any regard, postponing its cruises will be bad for CCL stock for obvious reasons. If the Covid-19 trends and case counts continue to climb, it will only make things worse. Still up 120% from its lows, I’m going to wait on Carnival’s stock.
CCL Stock Is Struggling
On June 18, Carnival reported its preliminary second-quarter results. The company lost $3.30 per share, missing estimates by more than $1.50. GAAP earnings were even worse, as the company lost more than $6 per share. Revenue of $700 million sank 85% year-over-year.
Management had this to say:
“The company’s guest cruise operations have been in a pause for a majority of the second quarter. In addition, the company is unable to definitively predict when it will return to normal operations … As a result, the company is currently unable to provide an earnings forecast. The pause in guest operations is continuing to have material negative impacts on all aspects of the company’s business. The longer the pause in guest operations continues the greater the impact on the company’s liquidity and financial position.”
Finally, management expects a net loss for the second half of 2020 as well. On the plus side, Carnival has $7.6 billion in available liquidity and believes it can further enhance that liquidity in the future. That’s a slight positive for CCL stock moving forward.
Right now the plan isn’t to thrive, it’s to survive. It’s not through its own fault, it’s just the way this environment is right now. But for me, that’s not a situation where I want to deploy my investment dollars.
Revenue is forecast to fall 57% for 2020 and rebound “just” 55% in 2021. That still leaves a lot off the table vs. 2019’s results. Let’s either wait for more clarity or a better price before stepping into CCL stock.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
