Carnival Stock Is an Attractive Long-Term Play on the Cruise Comeback

Carnival Corporation (NYSE:CCL) stock hasn’t had a great year, the pandemic has arguably hit cruise line operators the most.

Carnival cruise (CCL) ship on the water

Source: Ruth Peterkin /

With their inability to facilitate social distancing and their dependency on global travel, cruise lines have shut down during the crisis.

However, major cruise liners are now seeing a remarkably strong booking situation.

CCL stock will benefit from the pent-up demand and is trading at a repressed valuation due to its leverage. Though challenges remain, once the industry returns to normalcy, expect CCL stock to storm out of the gate emphatically.

The CDC’s conditional sail order has also been in place since fall 2020. However, with the expanding distribution of the vaccine and more regulatory activity, things are looking much better than they did last year.

The outlook for the industry, in general, has turned from dim to bright.

A Closer Look at CCL Stock

The next few months are critical for the industry, especially regarding the CDC’s policy turnaround. Members of the U.S. House of Representatives have taken up a bill calling upon the CDC to revoke its conditional sail order.

The House bill calls for the resumption of passenger cruising from July onwards. Hence, there are a lot of interesting developments in store for Carnival and its peers.

Perhaps the most obvious catalyst moving CCL stock is the pent-up demand for cruise travel. It witnessed a  90% bump in booking volume in the first quarter this year on a sequential basis.

More importantly, its advanced bookings for 2022 are significantly ahead of its 2019 figures, a record year for the cruise line industry. Moreover, it could destroy expectations if the CDC lifts its conditional sail order.

Despite the performance of the improved booking, 2021 still would not have a great year. Currently, the expectation is that it should back roughly $4.4 billion in revenues in 2021. Moreover, Carnival should generate four times that amount at $17.3 billion the following year.

One of the big problems with the company is its massive debt load which totaled $19.8 billion in its most recent quarter.

That is up by a massive amount from its net debt in 2019 at $1 billion. Customer deposits and bookings will help considerably in managing its financial situation. Nevertheless, the business update suggests that the demand for cruises is likely to go through the roof soon.

CDC’s Conditional Sail-Order Revocation

The CDC’s latest amendment to its conditional sail order has pushed the date to Nov. 1.

However, the CDC can reopen the sector earlier if it deems that the novel coronavirus is no longer a public health concern. Major cruise liners such as Carnival and Norwegian (NYSE:NCLH) have been lobbying to get the CDC to lift the ban. Norwegian announced that it would be restarting voyages outside the U.S. this summer.

Moreover, Carnival has also stated that it might have to find alternative solutions to start sailing again if the restrictions do not ease up.

Most recently, the U.S. House of Representatives has joined the Senate in their attempts to get the CDC to revoke its conditional sail order. It requires the agency to provide extensive guidelines for the safe return of passengers.

Bottom Line on CCL Stock

CCL stock has been battered and bruised by the pandemic, but it appears that the sky is brightening the sector. The CDC’s odds of lifting its conditional sail order have massively improved and could help Carnival kickstart its recovery much earlier than anticipated.

Bookings are mighty impressive for the company and are a testament to the pent-up demand for travel. Therefore, there’s a lot of upside to CCL stock at this time and is a buy at its current price.

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

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