Carnival Stock Looks Stuck Despite White House Intervention

Like a bad dream, Carnival (NYSE:CCL) recently announced the cancellation of most of its U.S. cruises through the remainder of 2020. Despite intervention from the White House, it wasn’t enough to keep its share price from falling on the news.

carnival cruise (CCL) ship on the water
Source: Ruth Peterkin / Shutterstock.com

How did the White House intervene?

On Sept. 30, the Centers for Disease Control and Prevention (CDC) extended the “no sail” order on cruises from U.S. ports through Oct. 31. It had initially sought a ban through February, but the White House overruled the agency.

Florida’s two senators, Marco Rubio and Rick Scott, along with leaders at the state and municipal level, have been pushing hard for the cruise industry to resume sailings sooner rather than later.

While the cruise industry is a big economic engine in Florida, some perceive the White House’s move as an attempt to woo voters in the important swing state for the 2020 election.

“The last thing the cruise industry leadership wants is for this to become a political issue,” Wedbush analyst James Hardiman stated Oct. 1. “This is an industry that’s been around for a long time and they intend to be around for a long time going forward.”

Morningstar analyst Jaime Katz believes that the extension of the ban to Nov. 1 doesn’t mean much because Carnival and the other cruise lines weren’t planning to send out any U.S.-based cruise ships until November at the earliest anyway.

Much Ado About Nothing?

I’m not sure cruise industry optimists can break out the champagne just yet because there’s a lot of suffering to take place before things get back to normal.

On the cancellation front, Carnival will resume operations on a phased-in basis. As a result, it has canceled most of the departures from U.S. ports, including its cruises to Hawaii, through the rest of 2020.

On Oct. 5, Norwegian Cruise Line Holdings (NYSE:NCLH) announced that it had extended the cancellation of its cruise operations through at least the end of November. Some of its cruise ships might not hit the high seas until April.

“We continue to closely monitor the Covid-19 coronavirus situation and the global health environment. With Covid-19 continuing to impact communities and ports around the globe, we have extended our voluntary temporary suspension of all voyages through November and cruises on Norwegian Star, Norwegian Spirit, and Norwegian Dawn through March 2021,” the company stated in a press release.

The only one of the three major cruise operators that’s yet to cancel November cruises is Royal Caribbean (NYSE:RCL). However, its own cruising blog recently wondered if it would soon be next to shut down operations.

“The big question is if/when Royal Caribbean may announce a new set of cancellations to match what the other cruise lines have done,” wrote Matt Hochberg in an Oct. 5 blog post.

“Royal Caribbean rarely gives any kind of warning when a new set of cancellations are going to occur, and there is no consistent pattern to when they have been announced.”

However, Royal Caribbean chief executive officer, Richard Fain, did make some comments on the subject.

“Soon, we hope to have the opportunity to put our plans to the test. It’s not going to happen overnight. It is going to take time for this process to work through,” Fain stated.

“The process will be carefully evaluated by independent outside observers and then only on a ship or two at first, we hope to start sailing again.”

That sounds like a fait accompli to me. We’ll know very soon, I’m sure.

Harvesting Carnival Stock Losses

Needless to say, business is not coming back in 2020, which should put some downward pressure on its stock as we get closer to the end of the year, and investors opt to harvest their tax losses.

Year-to-date through Oct. 7, Carnival is down 69%, suggesting there could be a lot of this happening between now and New Year’s Eve.

In the long term, I am bullish about all three cruise stocks. In my last article about Carnival, I suggested that strong insider buying portends good times are in the cards later in 2021. But first, we have to get there.

Wedbush’s Hardiman commented on the future.

“I am fairly bullish on the industry long term. It’s obviously a mess in 2020 and 2021 I think is going to be a messy year as well,” the Wedbush analyst stated. “But the best news we could get is that they were given the clearance to resume operation.”

However, the direction of its share price through the end of 2020 is dependent on whether the novel coronavirus gets any worse in places like Florida, Texas, and Louisiana where most of its boats sail from.

In early September, I argued that $13 could be a good entry point for buying Carnival shares. I don’t believe things have gotten visibly better or worse since then, so I’ll continue to recommend its stock in the low double digits.

Unless I’m wrong, Carnival’s share price appears to have run aground, and you’ll get such a buying opportunity before the end of the year.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


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