Carnival (NYSE:CCL) stock is top of mind for many investors recently. The cruise industry has been battered perhaps more than any other during the pandemic. The dual catalysts of travel bans and oil price shocks have seen cruise stock prices plummet, including CCL stock.
Carnival’s current price of around $18 is down roughly 63% year-to-date. Carnival’s main competitors, Royal Caribbean (NYSE:RCL) and Norwegian Cruise Lines (NYSE:NCLH), have fallen 56% and 67% in the same period, respectively.
Investors are trying to make sense of what ceased operations mean in terms of balance sheet health, ability to survive, and prospects going forward.
Carnival Stock Shored Up With Liquidity
Investors can rest assured that Carnival will continue operations for the foreseeable future. Operating a cruise line is a capital-intensive endeavor requiring considerable liquidity to buffer against unforeseen changes. As of Feb. 29, Carnival maintained about $3 billion (pg. 34) in immediate liquidity, which was drawn down as a result of the company ceasing its operations due to COVID-19.
On April 1, the company raised a further $5.75 billion of liquidity through secured and convertible notes. This provided the company with not only the capital, but also the confidence to move forward.
Management is quoted in the same 10-Q filing saying “we will be able to generate sufficient liquidity to satisfy our obligations and remain in compliance with our existing debt covenants for the next twelve months.” Such announcements should quell retail investor fears that CCL stock could drop to zero.
More recently, Carnival also announced a round of layoffs, furloughs, salary cuts, and work-hour reductions to slow operational losses.
Resumed Operations and CCL Stock
Carnival’s operations won’t fully resume until Aug. 31. Because the company comprises nine brands and maintains a fleet of over 100 ships, things can become confusing. Beginning Aug. 1, eight Carnival brand ships will resume operations from Galveston, Miami, and Port Canaveral.
Carnival maintains a total fleet of 27 branded ships. The company stated that by Aug. 31, all 27 Carnival branded ships will resume operations (eight on Aug. 1, plus the remaining 19 ships on Aug. 31).
Investors should be able to draw a much clearer picture of Carnival stock at that time barring any further setbacks. Bigger picture, American consumers will also hopefully be able to collectively assess a forward strategy for the economy and the nation at that time as well.
That said, investors need to consider other factors. That scheduled Aug. 1 date of resumed operations seems less than certain given recent coronavirus outbreaks and spikes in Florida and Texas. Unfortunately for Carnival, Port Canaveral and Miami are in Florida, and Galveston in Texas. The CDC’s no sail order ends July, 24, but outbreaks mean it may be pushed back.
Carnival’s Stock Set For Slower Return
Once the economy is fully open — whenever that may be — certain sectors will inherently reach normal capacity faster. Flight traffic should resume quicker than cruise traffic as a result of it being more necessary. People need to travel for business, and flying moves the gears of the economy much more than cruises do. So when Aug. 1 and Aug. 31 roll around, we should expect that cruises, being a luxury, may rebound somewhat slowly. That is, of course, if the no sail order doesn’t get pushed back.
We can also quite safely assume that consumers won’t be flush with cash when things open up. Suffice it to say, the average consumer won’t likely prioritize taking a cruise when life fully resumes.
Ultimately, Carnival will return. Consumers will go on cruises, and life will normalize. The future will look different, but the company has enough liquidity to weather the storm.
Takeaway on Carnival Stock
I think all but the most pessimistic of investors believe that a great majority of battered stocks, Carnival stock included, are going to rise. And it has at least enough liquidity to see it through another 12 months.
The company is scheduled to resume operations in late August. It isn’t going to magically rise to pre-pandemic levels in September, but there is money to be made on the stock. Fundamentally, that remains true for many other stocks.
Ultimately, I can’t see a compelling case for it being a buy or better. I believe Carnival is simply a hold. To some, it will make sense to buy the dip should Carnival’s stock drop again. But I wouldn’t do so before earnings reports come out in a few weeks.
As of this writing, Alex Sirois does not hold any of the aforementioned stocks.
