It’s difficult to count Carnival (NYSE:CCL) stock out. Sure, it’s down, having fallen massively at the onset of the pandemic. But at the same time it is essentially too big to fail. That’s why I still see it as a rebound play despite the ongoing pandemic and omicron variant.
It, along with Royal Caribbean (NYSE:RCL) and Norwegian Cruise Line (NYSE:NCLH) simply define the industry. The three companies collectively account for $52.96 billion of the $53.42 billion in market capitalization within the cruise line sector. Carnival is the largest and most important player in the industry.
Ignore the Bearish Take
The bear thesis against Carnival relates to the ongoing pandemic. It has been a very trying period for cruise ship operators. That long, trying journey continues. In fact, at the end of 2021 the CDC increased its travel warning for cruises to the highest level. It also issued the warning that the risk remains very high in spite of vaccination status.
The idea underpinning this argument is that cruise ship operators have had to take on increasingly massive debt loads. Yes, operating cruise ships is a capital intensive business. And yes, Carnival’s debt load has increased. As of Nov. 30 its long-term debt sat at $33 billion. That was up from $26.95 billion a year prior. So yes, it is rising, and yes, most would characterize that as a ‘massive’ debt load.
But it isn’t as if Carnival is at risk of going bankrupt. At last check, it maintained $7.8 billion in liquidity. Yes, that’s less than the $9.51 billion in liquidity it reported a year earlier. Losing over $1 billion is a big loss, but considering their operations have been shuttered almost entirely, it’s impressive they still have that much.
In other words, Carnival is still the biggest cruise ship operator on the planet, and that means its still a rebound and reopening play. Because until there’s some sort of signal that some other firm can dethrone Carnival, that argument will continue to hold water.
Declining Losses & Rising Revenues
I think Carnival sits at a crossroads right now. It suffered a $8 billion loss through the first three quarters of 2020. That loss declined to $6.89 billion through the same period in 2021. That suggests, but doesn’t prove, that Carnival has reached a turning point.
The pandemic is nearing its end despite the Omicron surge. And that means revenues are expected to rise as the world reopens. The eighteen analysts surveyed by Seeking Alpha anticipate Carnival should record approximately $16.35 billion in 2022 revenues, followed by a 2023 estimate of $21.99 billion. That eclipses the company’s 2019 revenues of $20.82 billion.
That doesn’t mean CCL stock is going to magically rise to pre-pandemic price levels between $45 to $50. But it does suggest that CCL stock could be above $30 in the not too distant future.
It’s the same buy-the-dip argument that has kept certain investors bullish on CCL stock for as long as the pandemic has worn on. The analyst ratings aren’t great for Carnival shares. There’s little denying that. But at the same time, it seems unlikely that Carnival will move much lower.
What to Do With CCL Stock
Carnival isn’t out of the woods yet. In fact, it won’t be out of the woods for some time to come. The consequences of the debt load it took on during the pandemic will be felt for several years. But at the same time, Carnival will remain the largest cruise line in the world. It isn’t dead, it isn’t going bankrupt, and no other cruise line is going to usurp its position in the industry.
That’s why it remains very difficult to bet against it, despite the ongoing pandemic. In other words, this pandemic downturn and any subsequent pandmeic downturn won’t do much to change the dynamics of the cruise industry as an oligopolistic market. That will continue to make CCL stock attractive.
On the date of publication, Alex Sirois 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 InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.