Carnival Cruise Lines Presents Investors With a Clear Risk/Reward Scenario

  • Carnival Cruise Lines (CCL) remains under pressure after it announced a new debt offering. 
  • The timeline for profitability in the cruise industry continues to get pushed back. 
  • Wait to make sure consumer’s behavior matches their intention before buying CCL stock. 
Carnival cruise (CCL) ship on the water
Source: Ruth Peterkin / Shutterstock.com

Investors in Carnival Cruise Lines (NYSE:CCL) must be wondering what they need to do to catch a break. A halting recovery in the cruise line industry is keeping CCL stock trading at 25-year lows. That’s not a misprint. Carnival hasn’t consistently traded at its current levels since 1996.  

Carnival, along with the other major cruise lines were forecast to be slam dunk recovery stocks. No matter how individuals personally feel about cruising, there’s no doubt that’s it a popular vacation option. And the belief was that cruise lines would be major beneficiaries of pent-up demand for travel. 

It hasn’t worked out that way. Like inflation expectations, the slump in cruise line business was expected to be transitory. The reality is that, like inflation, transitory is taking a lot longer than many people expect. That presents investors with an uncertain outlook and makes CCL stock a buy for only the most risk-tolerant investors.  

CCL Carnival Corporation & plc $12.15

14 Million Reasons to Buy 

Carnival now is expecting to have its full fleet back in operation this summer. It’s the only cruise line that can make that claim. And the company is projecting that it will have nearly 14 million guests climbing onboard its ships in 2022. For the “it can’t get any worse” crowd, this backs up your argument.  

However, I can’t help but look at the company’s last earnings report in which the company posted a disappointing $1.6 billion in revenue. Not only did this miss analysts’ expectations for revenue of $2.3 billion, but it was a fraction of the $4.79 billion that the company posted in its last pre-pandemic quarter. That 66% disparity in revenue correlates nicely with a stock price that is 74% lower than where it was trading on Dec. 27, 2019. 

20 Billion Reasons to Stay Away 

Every major cruise line took on debt during the pandemic. None more than Carnival, which added $20 billion to its balance sheet. The cruise line reported $7.2 billion in liquidity when it reported earnings in March. That was down from $9.4 billion in the prior quarter.  

However, what concerned investors more is that the company recently announced a private offering of $1 billion of senior unsecured notes at an annual interest rate of 10.5%. On top of that, the company now finds itself paying back the debt in a rising interest rate environment.  

Wait on CCL Stock 

Every time I think CCL stock is starting to form a bottom, it finds a way to keep falling further. Investors are already seeing evidence of the consumer starting to draw lines in the sand of where they’re willing to spend and where they’re not.  

Right now, I have no reason to doubt that Carnival is expecting robust demand. But before I consider buying CCL stock, I don’t need to hear what consumers intend to do. I want to see evidence of what consumers are really planning to do. That information won’t be available for a quarter or two. If the numbers are favorable, there will still be an opportunity to buy the stock at that time. 

On the date of publication, Chris Markoch 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. 

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.


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