The string of canceled cruises continues for Carnival (NYSE:CCL), adding more weight to that seasick-like sense of dread many investors in CCL stock are feeling.
Like pages of a calendar passing in an old movie, yet another month of no sailing was recently confirmed by the Cruise Line Industry Association. The trade group’s announcement was a surprise only to believers of the fable that the novel coronavirus will soon disappear.
These days, a cancellation is called a “service pause extension.” And the latest has cancelled U.S. cruises scheduled for Oct. 1-31. The news of cancellations has become a regular activity, fueled by what the trade group describes as “unprecedented decisions” disrupting vacation plans.
Calm Phrase, More Anxiety
But the public-relations lingo of a “pause extension” really puts it mildly. This wave of cancellations triggered by Covid-19 removes October from the timeline for the resumption of sailing. There’s little to convince anyone that November won’t also be paused. And December, too. Soon they’ll have to come up with a better word for it.
These cancellations do more than disrupt a traveler’s plans. They also erode an investment in the company. Carnival is leaking money as it seeks to weather the pandemic. About half of the cruise line’s customers are seeking refunds rather than enticements to reschedule their canceled trip.
The company aims to be as lean as possible as it rides out the pandemic turmoil. Carnival raised $10 billion to pay for the shutdown. Destinations were pruned and the company is paring its inventory. In fact, Carnival is getting rid of 13 cruise ships, as InvestorPlace contributor Will Ashworth wrote recently: “… there’s never been a better time to buy a used cruise ship.”
CCL Stock Surrounded by Storm Clouds
Investors in CCL stock must be wondering just how big a price they will have to pay to ride out the pandemic with the company.
Obviously, earnings will be miserable. Here’s the contrast: Last year the company reported earnings of $4.40 per share and posted record profits. This year’s second quarter saw Carnival’s revenue plunge about 85%. Its operating loss totaled some $4 billion.
Capital spending was wisely shelved in the cost-cutting fury. Unfortunately, those projects will demand attention whenever even-limited operations resume. And, the remarkable financing that managers arranged only adds to the company’s debt load.
All this will combine to pose a significant challenge to a leaner Carnival once it gets the green light from health authorities to set sail again.
Cruise lines endured a lot of bad press in early 2020 as reporters tracked ships with Covid-19 infections. Countries struggled what to do with passengers and crew. In the U.S., President Donald Trump said he didn’t want them ashore because of the statistical impact.
Even a recent limited cruise in Norway ended badly as Covid-19 cases erupted on board.
Despite all this, it is clear many Americans and others around the globe want to go on a cruise. It’s a relaxing, though artificial, setting filled with food, shows and stops at island destinations.
Bottom Line on Carnival Stock
Carnival stock has been quite volatile over the 12 months. Not surprisingly, the impact of Covid-19 on the cruise industry continues to be severe. CCL shares peaked at $51.94 and seem to have bottomed out at $7.80. After Wednesday’s near 4% decline, they’re set to open just above $15 per share.
Investors should be asking two questions: When will the cruise industry see something approaching normal? And should you place a bet on CCL stock now?
A fundamental of stock investing is to buy shares of a company when it is down so long as it has what it takes to recover. Carnival is experiencing a long down period, no doubt. But there’s no sign $15 price will hold.
If you can’t resist the allure of Carnival’s share price and have money to gamble, then buying CCL stock makes some sense. But it’s not for average investors at this time.
Larry Sullivan is a veteran journalist who has covered banking and finance for several years. A former investing editor at U.S. News & World Report in Washington D.C., he also was news editor for The Associated Press in Omaha and the newsroom manager of newspapers in Florida, New Mexico and Arkansas. At this writing, Larry Sullivan does not own a position in any of the aforementioned securities.