The shares of cruise line Carnival Corp. (NYSE:CCL) climbed 13% between August 5 and 11, as travel rebounded and its fleet of 23 ships returned to the high seas.
Tourism Recovery
The current rally of CCL stock was sparked by news from rival cruise ship operator Royal Caribbean (NYSE:RCL). The latter company announced on Aug. 4 that 29 of its 68 ships are back in the water, with seven more poised to resume cruise operations by month’s end.
By the end of 2021, Royal Caribbean expects to have 85% of its fleet operational again, despite the fact that the Delta variant of Covid-19 continues to infect tens of thousands of people across the U.S.
While the spread of the Delta variant knocked down CCL stock and other cruise line operators in July, their share prices have come roaring back as it becomes clear that the demand for cruising remains strong and resilient.
A summer survey by the Cruise Lines International Association found that two out of three regular cruise travelers are willing to cruise again within a year, while nearly three-fourths say they’re likely to board a cruise ship within a few years. The survey also found that 58% of international travelers who have never taken a cruise before are likely to do so within the “next few years.”
Fully Operational
For its part, Carnival has issued the most bullish outlook among the major cruise line operators, stating that it plans to be fully operational by the end of this year. Carnival has said that its entire fleet will be sailing again this autumn, enabling the company to operate at 75% of its total guest capacity. It is the most aggressive outlook issued yet by a cruise operator, and investors have taken notice, pushing CCL stock up to its current price of just under $22 per share.
Carnival’s executives say they are able to forecast a return to full operations because bookings for the first half of next year are already running ahead of 2019’s comparable booking levels.
Carnival CEO Stein Kruse has said that the strong bookings confirm that people are indeed ready to travel again, even if the pandemic isn’t completely behind us. That cruise lines are requiring passengers to provide a vaccine passport or undergo Covid-19 testing appears to have also given people confidence to begin sailing again.
Strong Ratings
Analysts who cover the cruise line industry have been more bullish on CCL stock due to its improving outlook. On Aug. 6, Citigroup (NYSE:C) analyst James Ainley raised his price target on CCL stock to $34 from $30 and said that investors have a “great entry point” at the current share price of under $25. The median price target on Carnival’s stock is $30, with a high estimate of $39.
Of course, the wildcard for Carnival and its stock is the resurgence of Covid-19. Many countries continue to keep their borders closed to tourists, and countries that have opened could shut down again if there is a surge in infection rates.
Globally, the tourism sector continues to struggle. While Carnival and other cruise lines are bucking the trend for the time being, the situation could change quickly and without a lot of warning.
Buy CCL Stock
Despite some continued challenges from Covid-19 and the Delta variant of the respiratory disease, Carnival is literally cruising ahead. With the Miami, Florida-based company’s ships back in the water, plans to be fully operational by year’s end, and future bookings running at pre-pandemic levels, the outlook for Carnival is extremely positive.
While CCL stock has undergone peaks and troughs in recent months, the current share price is attractive, and it is well below its 52-week high of $31.52. Investors looking for profits over the medium-term should buy CCL stock.
On the date of publication, Joel Baglole 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.
