Rampant furloughs and docked cruise ships were the underlying theme for companies like Carnival Cruise Line (NYSE:CCL) in 2020. And by the looks of it, it is unlikely these ships are setting sail anytime soon. After numerous failed experiments on the cruise lines’ part like increased testing, CCL stock finds itself in a dire position.
The CDC decided to extend its no-sail order, as a result, stating that the “transmission had not been controlled sufficiently.” For an industry that came to a standstill at the onset of the pandemic, the extended regulations by the authorities is “the straw that broke the camel’s back.” CCL stock, once a high-flyer in the sector, is now in rogue waters.
CCL Stock Is A Sinking Ship
The approval and rollout of the vaccine shed a glimmer of hope for the eventual return of cruise ships. However, this does not seem to be the case as the path to recovery for many companies still remains unclear. Carnival Corporation was among the major industry players battered by the pandemic. After a pop in its shares on news of the vaccine, the company is back in deep waters as ships remain docked.
We may be seeing a slight dip in Covid cases globally but this has not altered the fate of cruise ships. The slow rollout of the vaccine and subsequent inoculation of the masses could very well mean another cruise-less year. After months of extending and eventual expiration of the no-sail order in October, cruise ships are no closer to sailing the high seas again. Carnival Corporation stated that it is unlikely to resume operations until May 1.
Adding to the burden of the no-sail order is people’s declining perception of the cruise line industry. Many view enclosed spaces like ships as a breeding ground for the virus. This means that even when cruise lines do resume operations we are unlikely to see an immediate return to pre-pandemic demand levels. Amidst these operational challenges, Carnival Cruise lines also needs to figure out a way to stay afloat in the meantime.
A Weak Financial Position
With the end of the pandemic nowhere in sight, the lack of sailing has (understandably) taken a toll on CCL stock numbers. In its most recent quarter, the company reported a net loss of $2.2 billion. However, through a series of debt and equity offerings, CCL managed to raise $2 billion bringing its total liquidity position to just $9.5 billion. Carnival’s management believes it will see them through a cruise-less 2021. Nevertheless, we are likely to see additional bond offerings by the company to raise extra cash.
In terms of revenue, CCL saw a 73% decline in 2020, recording annual revenue at $5.6 billion. For the sake of comparison revenue in 2019 amounted to $20.82 billion. This dip comes from Carnival’s large cash burn rate- estimated at $600 million per month. Even with no sailing costs, Carnival still has to pay for maintenance and dry dock expenses each month. A bleak outlook coupled with faltering finances led CCL stock to tumble from its 2019 highs.
Analysts have lost confidence in the company as well with Stuart Gordon of Berenberg giving the stock a $14 price target. CCL stock is trading at $20.60 as of this writing. Adding to this, Moody’s Investors Service which already gave the company a junk rating stated that it has been put on “review for downgrade.” This wave of pessimism from analysts on The Street stems from the poor outlook on when cruise lines will be able to resume operations.
The Bottom Line
The end of the pandemic (or a vaccinated population at the very least) is the only way cruise ships can hope to see the light of day. As the rollout of the vaccine continues at a slower than an expected pace, a cruise-less 2021 is very much in the cards. For Carnival, this ultimately means no incoming revenue for the foreseeable future. While the travel sector does have its winning stocks, an investment in cruise lines is unfortunately not one of them. I would hold off on taking the plunge on CCL stock until the company finds itself in calmer waters.