Carnival Stock Still Isn’t a Buy Despite the Company’s Improved Outlook

The outlook of Carnival (NYSE:CCL) stock is improving as fear of the coronavirus falls and as the end of the pandemic appears to come into sight.

Carnival cruise (CCL) ship on the water
Source: Ruth Peterkin /

Given the continued elevated risk posed by Carnival’s shares, along with the cruise line’s high debt load, I still recommend avoiding the stock for now.

Many signs suggest that fears of the virus, are at a rather low point despite the Delta variant, at least in the U.S.

The number of people going through TSA checkpoints in September are about 25%-35% lower than on the same days in 2019. Although that sounds like a big decline, it’s a huge improvement compared with when airline travel was down 90%-95% in Spring 2020.

During my own vacation in the second week of September, I noticed that the planes on which I traveled were full and the airports were also far from empty, although far from maximum capacity.

Friends of mine who live in Maryland and Northern Virginia say that the stores, restaurants and trains are starting to fill up there. The stores and restaurants in the Dallas area, where I live,  have been fairly crowded for the past four or five months.

All of this information bodes well for Carnival and CCL stock. The less fear Americans have of the virus, the more of them are likely to go on Carnival’s cruises.

An End in Sight

In a Sept. 1 article about Novavax (NASDAQ:NVAX) I claimed the virus could weaken soon, but that NVAX stock was still a risk.

I based my theory on two points. First, that by mid-September the pandemic would be going on in the U.S. for about 18 months and that the 1968 Influenza Pandemic faded after 18 months. Second, with the number of people getting vaccinated and catching the virus rising rapidly, herd immunity could arrive sooner rather than later.

Since the article was published, I’ve seen two statements from experts that support my position.

First, from epidemiologist and mathematical modeler at the University of South Florida Dr. Edwin Michae. He told 10 Tampa Bay recently that cases in Florida were dropping because the state was very close to herd immunity.

Second, The Times of Israel reported that health ministry officials believe Israel could be heading toward herd immunity against COVID-19.

The website, citing an Israeli public station called KAN, said there is “a good chance that in the next month or two, we’ll reach a situation that is very similar to herd immunity.”

Of course, all of this is good news for CCL stock. If Florida and Israel are close to herd immunity, there’s a good chance that many other U.S. states and Europe are as well.

That’s because the entire U.S., Europe and Israel have been suffering from the virus for about the same amount of time and are using similar types of vaccines.

Once herd immunity arrives, hundreds of thousands of more people globally are going to want to take Carnival’s cruises.

The Near-Term and Long-Term Risks

Carnival still faces major risks. In the short term, the company’s image and business could still be hurt by Covid-19, and its high debt levels are likely to weigh on CCL stock in the long term.

Last month, Carnival received a great deal of bad publicity after a 77-year-old passenger who was reportedly on one of its cruises died of Covid-19.

If similar incidents occur within a short time frame on Carnival and/or other large cruise lines, or passengers are forced to quarantine themselves for weeks onboard cruise ships, Carnival could still have a very tough time for a couple of months.

In such circumstances, only when herd immunity is achieved and the media widely reports that it has been reached will Carnival be able to recover. In the U.S., that entire process may not be over before the end of the year.

The company’s high debt load is likely to weigh on CCL stock over the long term, as ably described by InvestorPlace columnist Will Ashworth.

That’s because many institutions are likely to avoid the shares due to the cruise line’s high debt load, especially if interest rates climb meaningfully.

Rising interest rates could imperil the company’s ability to meet all of its obligations to its creditors, particularly if its business encounters new challenges, such as a recession.

The Bottom Line on CCL Stock

Carnival looks poised to benefit from the end of the pandemic. Dr. Anthony Fauci has said that it could end in March.

With the company still facing tough risks, investors should choose a safer reopening play that has a much lighter debt load and much less reopening risk. Southwest (NYSE:LUV), and Macy’s (NYSE:M) come to mind.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015.  Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.

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