Carnival’s Outlook Has Greatly Improved, But CCL Stock Remains Very Risky

In August 2021, I wrote that “the virus could begin to meaningfully weaken, both in terms of prevalence and virulence.” With the onset of the omicron version of the coronavirus, the virulence i.e. severity of the virus has indeed greatly lessened. And now that omicron cases are tumbling , the virus’ prevalence looks poised to sink as well. Consequently, I’m more bullish on Carnival (NYSE:CCL) stock than I have been since it became apparent that Covid-19 would spread all over the U.S. back in March 2020.

Carnival (CCL) cruise ship on water in front of beach with chairs
Source: Flickr

Also making me more upbeat on Carnival are the advent of highly effective therapies for the coronavirus (something I never thought would occur) and the fact that Americans’ fear of the virus has, now more than ever, receded tremendously.

On the other hand, I still believe that there are much better ways to play the reopening of America than CCL stock.

 Covid-19 Has Become Much Less Problematic for Carnival

Nearly all experts now seem to agree that the omicron variant, which has become dominant in the U.S., is much less severe and deadly than previous versions of the virus.

Indeed, the death rate for fully vaccinated people in the U.S. last month was trending at about 1 in 100,000. That, of course, includes very vulnerable individuals.

Meanwhile, governments in the U.S. are starting to send signals that Americans no longer have to be extremely afraid of the virus. Mask mandates are ending even in parts of Democratic-leaning states like Maryland and Colorado. At the end of last year, the Centers for Disease Control and Prevention (CDC) cut its vaccination requirement for people who have recovered from the coronavirus to five days from ten days.

And  sounding much more upbeat than he has since the pandemic officially reached the U.S.,  Dr. Anthony Fauci recently said that America’s outlook vis-a-vis the virus was “good.”

Finally, highly effective therapeutic medicines made by Merck (NYSE:MRK) and  Pfizer (NYSE:PFE) should further decrease both death rates from the coronavirus and Americans’ fear of the illness.

Given all of these points, I believe that a very high percentage of Americans are no longer very fearful of the virus and will be now be ready and willing to book cruises on Carnival’s ships.

Carnival’s Situation Is Still Far From Optimal

On the other hand, in January, the CDC did issue a warning telling all Americans to avoid cruise ships. That could deter some travelers from booking cruises.

And, as InvestorPlace contributor Muslim Farooque pointed out last month, the company’s cash burn totals and debt load remain huge. Specifically, he wrote that Carnival “is burning close to a whopping $2 billion each quarter. As per its latest quarterly report, it carried an insane level of debt, totaling $32.6 billion.”

Those figures do make CCL stock a quite risky name in which to invest over the long term, particularly with interest rates rising.

Meanwhile, as I’ve pointed out in past columns about Carnival, I believe that the cruise sector’s reputation could be badly hurt if the people on one or more cruises are forced to quarantine in their tiny rooms for many days at a time.

I think that the chances of such a development have dropped sharply due to the proliferation of vaccinations and treatments, along with reduced fears of the virus. Still, such scenarios could occur going forward.

The Bottom Line

With Americans’ fears of the coronavirus falling and likely to drop sharply, Carnival’s cruise bookings and revenue could very well be quite strong in the upcoming weeks, months, and quarters.

Still, the multiple risks that I outlined above do make CCL stock much more dangerous than almost every other reopening play. As a consequence, although the shares are not a horrible pick for short-and-medium-term investors, I would definitely advise those with long time horizons to continue avoiding the name.

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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