When the Centers for Disease Control and Prevention (CDC) posted its guidelines for restarting cruise operations, Carnival (NYSE:CCL) initially rallying again. Carnival is exercising a cautious approach instead: it will extend its North American brands pause extension. Carnival stock is effectively a bullish bet that the world will keep a lid on the spread of the coronavirus in the coming weeks.
Investors who want to buy cruise line stocks need to assess the macro headwinds first.
Carnival announced on Nov. 2 that it would extend its existing pause in operations. It will suspend cruise voyages between Dec. 1 and Dec. 31.
“We continue to work with the U.S. Centers for Disease Control and Prevention, and global government and public health authorities, as well as top medical and science experts around the globe, on a comprehensive plan for the eventual restart of cruising in North America,” CEO Arnold Donald said.
Investors need to monitor the spread of coronavirus in North America and worldwide. Currently, with record new cases pushing past 100,000 in the U.S., the chances of a cruise restart in January 2021 appear remote.
Tourists have hope of an earlier return to the seas.
A Closer Look at Carnival Stock
Coronavirus is related to the common cold virus and like the winter flu, it could persist longer in cold weather. People also tend to cluster closer together indoors, so anyone infected will more likely spread it.
This unfortunate setting raises the macro headwinds for Carnival investors. Without revenue from the tourism industry, the company will continue to bleed money. Speculators who are betting that the stock will hold its $13.50 – $15 trading range since July may still get rewarded.
Carnival’s Costa Cruises posted its upcoming cruises for winter 2020-2021. Costa Smeralda will extend her cruises only in Italy until the end of Feb. 2021. Costa Deliziosa will keep operating its one-week itinerary in Italy and Greece until Jan. 3, 2021. Conversely, Costa Diadema will postpone her start date to April 6, 2021. This schedule suggests that Carnival will still operate at a limited schedule while promoting passenger safety. A positive catalyst for investors will not come until Carnival increases its cruise offerings.
At 12,000 new cases daily in eastern Europe, Carnival will continue limiting operations. The pandemic is forcing investors to watch for clues that the spread is under control. For now, the market is not dumping Carnival shares. At current levels, shares are trading at around half of its book value. The debt-to-equity ratio of 1.28 times (per finviz) does not raise alarm bells yet, either. If it needs more cash, Carnival may sell shares or issue debt to stay solvent.
Analysts, Bookings and Carnival Stock
According to SimplyWall.St, Carnival is worth almost $41 based on its expected future cash flow.
Analysts are neutral on the company’s prospects. Most rate the stock as a “hold.”
Carnival’s P&O Cruises introduced a new summer 2022 program. It is offering over 150 holidays from Southampton and the Mediterranean. Asking for a 5% deposit on all cruises should drive bookings. Plus, past guests get a 10% discount and new guests will get a 5% discount.
The cruise line also set a Dec. 14 deadline for the offer, which should push bookings higher. The future revenue potential from the pre-registration increases the predictability of the business. And since investors tend to reward companies with strong bookings growth, Carnival shares should continue trading with less volatility.
Carnival stock does not have any major positive catalysts in the near-term as the pandemic rages on. It will only suit patient investors who are willing to wait for a few quarters before its revenue returns.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.