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There’s Too Much Choppy Water Around Carnival Stock

Long-term investors should avoid CCL stock for now

In 2020, investing in travel stocks such as Carnival (NYSE:CCL) has meant a capital loss for shareholders. Year to date, CCL stock is down about 68%, which means it’s clearly in bear market territory.

CCL Stock: There's Too Much Choppy Water Around Carnival
Source: Ruth Peterkin /

Carnival’s shares are dual listed both in the U.S. and the U.K. In fact, until recently, it was the only company in the world to be included in both the S&P 500 index in the U.S. and the FTSE 100 index in the U.K. However, as of 22 June, the company has been demoted from the FTSE 100 to the FTSE 250 index.

Despite the gradual relaxation of various Covid-19 restrictions, travel (especially international leisure travel) remains mostly off the cards for many people worldwide. Let’s see what market participants may expect from CCL stock for the rest of the year.

A Look at Quarterly Earnings

In early January, Carnival prided itself on being the world’s largest cruise operator. Carnival owns major cruise brands including P&O Cruises, Princess, Cunard, Costa, and Holland America. Yet the post-coronavirus world looks rather different for Carnival.

On June 18, the group released disappointing second-quarter results. A net loss of $4.4 billion meant adjusted losses per share of $3.30. The year-ago quarter saw net income and EPS of $451 million and 66 cents. Similarly, total revenue of $700 million was much lower than $4.8 billion in the prior year.

In the quarterly report, Carnival could not give a date as to when it might return to normal operations. Thus, management was unable to provide an earnings forecast, either. 

Until last week, the U.S. Centers for Disease Control and Prevention (CDC) had a no-sail order for cruise ships operating in U.S. waters. It was set to expire by the end of July.

Then on June 15, Cruise Lines International Association, the industry’s lobbying group, announced that all of the leading cruise lines, including Carnival, Royal Caribbean (NYSE:RCL) and  Norwegian Cruise Line (NYSE:NCLH), would cancel their sailings through at least mid-September.

Cruises such as Carnival have so far have also been refused a bailout from the U.S. government because they are incorporated outside the U.S. Without a rescue package, these cruise operators are finding it rather difficult to get their financial house in order.

Should You Invest in Cruises Now?

In a recent academic research, Luc Renaud of the University of Quebec, Montreal, asks if cruise companies will recover from the coronavirus shutdown. Although it is rather difficult to answer that question at this point, he concludes that any optimism regarding the future of the cruise industry is “based on four expectations: a vaccine, the relaxation of travel restrictions, implementation of additional health measures for passengers to access the ships and, above all, the presence of a loyal clientele.”

The International Monetary Fund says the global economy will contract 3% in 2020. Yet for 2021, it forecasts robust growth. If you too agree that these grey clouds may dissipate in the coming months, it may then be time to start investing in travel stocks, such as CCL.

However, news headlines regarding a second Covid-19 outbreak, especially in Asia as well as stateside, are hitting the wires worldwide. According to the CDC, “Cruise ships are often settings for outbreaks of infectious diseases because of their closed environment and contact between travelers from many countries.”

Would I consider taking a cruise holiday now even if it were possible to do so? No, I would not take a cruise holiday, yet.

How about investing in cruise shares? Would I invest in them now? Today, if cruise stocks were the only investment option I had, I would not invest in them yet, either. Given the uncertainty as to when leisure travelers may return to the high seas, Carnival shares might not be suitable for every investor.

The Bottom Line on CCL Stock 

CCL stock has had a problematic trajectory so far this year. And shareholders have lost confidence in cruise shares.

Our regular readers may remember that given the uncertainty the industry is facing, in late March Carnival axed its dividend. Therefore, passive income seekers are unlikely to return to CCL stock, either.

At this point, I do not believe that the valuation of cruise operators like Carnival is attractive yet. As a result, it may still be too soon to invest in the shares.

Since the lows seen in March, CCL stock has more than doubled. It is now hovering at $16. If you are an investor who also pays attention to technical charts, then you may be interested to know that there will likely be some profit-taking in the shares in the coming weeks. A fall toward $15 could easily be expected.

As we enter the second half of the year, I think there may be better bargains in broader markets.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education, including a Ph.D. degree, in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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