Carnival Cruise: Invest Now?

Carnival Corporation (CCL) is the world's largest cruise operator, and its stock has been significantly impacted by the COVID-19 pandemic. The company's shares experienced a sharp decline in 2020, losing 57% of their value. However, as countries began administering COVID-19 vaccines and the Centers for Disease Control and Prevention (CDC) issued guidelines for the resumption of cruising, Carnival's stock showed some recovery.

While the prospect of a return to cruising and pent-up demand from customers may make Carnival's stock seem appealing, there are several factors to consider before investing. The company has accumulated a substantial amount of debt during the pandemic, and its finances will take time to recover. Carnival has also sold off some of its ships and reduced its dividend payouts, which could impact its revenue and profitability in the future.

Additionally, the stock remains risky due to the ongoing uncertainty surrounding the pandemic and the potential for further delays in cruising operations. While Carnival's management has taken steps to improve its financial position, the potential for share dilution and the company's high debt load are important considerations for investors.

Overall, while there may be opportunities for growth in the long term, the stock is not currently recommended for investors who are not aggressive and able to tolerate a high level of risk.

The impact of the COVID-19 pandemic on Carnival's operations

The COVID-19 pandemic had a devastating impact on the cruise industry, with Carnival, the largest cruise line operator in the world, being particularly affected. In March 2020, Carnival was forced to suspend its operations globally, facing the challenge of repatriating 260,000 guests and 80,000 employees who were stranded at sea. The pandemic also dealt a heavy blow to Carnival's finances, with the company reporting losses of 57% by the end of 2020.

In response to the crisis, Carnival implemented several measures to stay afloat and protect its customers and employees. The company paused its guest cruise operations, following the guidelines provided by health authorities and medical experts. They also accelerated the sale of less efficient ships, reduced operating expenses and capital expenditures, and raised more than $10 billion in new debt and equity financing. Carnival's management team worked to negotiate with creditors, waive restrictive covenants, and exchange outstanding debt for new common stock. These actions allowed Carnival to survive the pandemic and even emerge stronger, with an estimated $8 billion in cash on hand by June 2021.

The pandemic also had a significant impact on Carnival's customers, with many facing the dilemma of whether to opt for refunds or vouchers for future cruises. Approximately 45% of customers chose vouchers, contributing to $2.4 billion in deposits. This indicated a strong intention to return to cruising, with an independent survey in May 2020 finding that 67% of customers were planning to rebook a cruise once restrictions were lifted.

The COVID-19 pandemic also brought legal challenges for Carnival, as the company faced lawsuits from passengers alleging a lack of safety measures. Additionally, the company dealt with the tragic case of a passenger death onboard the Carnival Vista ship, which was later found to be unrelated to COVID-19.

Overall, the impact of the COVID-19 pandemic on Carnival's operations was profound, requiring swift and decisive actions from the company's management to ensure its survival and position it for future growth.

Carnival's cash flow and burn rate

In response, Carnival aimed to reduce its monthly cash burn rate to $250 million. To achieve this, they planned to defer and delay deliveries of new cruise ships. Out of the nine ships ordered for delivery in 2020 or 2021, only five would be delivered before 2022. Additionally, Carnival intended to sell 13 ships from its fleet, reducing its fleet size by 9% once all sales were completed.

By July 2020, Carnival had raised over $10 billion through various financing transactions to fund its cash needs. This included borrowing $2.8 billion under a first-priority senior secured term loan facility in June 2020. The company estimated that with its available cash and financing, it could survive until around March 2023 without needing to sell more stock or take out additional loans.

However, the resumption of cruising in the US was projected to be gradual, with limited-capacity cruises initially and a full return to normal operations only after vaccines were widely distributed. This raised questions about whether Carnival's cash reserves and burn rate would be sufficient to sustain the company until a full recovery.

As of July 2024, there is limited recent information available specifically about Carnival's cash flow and burn rate. However, it is worth noting that the company's stock price has been volatile since the pandemic, and it continues to navigate the challenges of the industry's recovery.

The company's share price and its history

Carnival Corporation (CCL) is the world's largest cruise operator, with nearly half of all global cruise guests travelling with them. The company's cruise brands include Carnival Cruise Line, Princess Cruises, Holland America Line, Seabourn, P&O Cruises (Australia), Costa Cruises, AIDA Cruises, P&O Cruises (UK) and Cunard.

The all-time high closing price for Carnival stock was 66.19 on 29 January 2018. As of 17 June 2024, the closing stock price was 15.69. The 52-week high stock price is 19.74, and the 52-week low is 10.84.

The stock took a hit in 2020, with an 80% plunge at the start of the year, ending with a loss of 57%. In April 2020, the company sold shares at $8 apiece, and since then, the stock has almost tripled in value. However, Carnival will close out 2020 as one of the worst-performing large-cap stocks of the year.

In 2021, a passenger aboard the Carnival Vista cruise ship died after testing positive for COVID-19. This news caused the CCL stock to dip. The company stated that the passenger most likely did not contract COVID-19 on the ship and that she received expert medical care on board.

The company's finances have been impacted by the pandemic, with a cash-burn rate of $530 million per month during the period when it was unable to operate. Carnival has also taken on more debt, with long-term debt increasing from $9.7 billion to $18.9 billion in the first three quarters of fiscal 2020. This has resulted in higher interest payments, impacting earnings.

Despite the challenges, there are positive signs for the company. Carnival has raised more money than any other cruise line, positioning itself to weather prolonged interruptions in operations. The company also has a significant cash reserve, estimated at $14.2 billion, which can keep it afloat through March 2023 without needing to sell more stock or take out additional loans.

Analysts predict a slow return to profitability, with modest annual profitability expected in 2022 and a return to pre-pandemic earnings levels by 2024. The stock is currently trading at ten times what it will earn in 2024, suggesting a potential for the stock price to double in the next few years.

Overall, while Carnival's share price has experienced volatility, particularly due to the pandemic, there is a positive outlook for the company's long-term recovery and potential for growth in its share price.

Carnival's debt and its implications

Carnival's long-term debt has been increasing since 2020. In 2021, the company's long-term debt was $28.5 billion, a 28.83% increase from 2020. This upward trend continued in 2022, with a long-term debt of $31.9 billion, reflecting a 12.08% increase from the previous year. As of February 29, 2024, Carnival's long-term debt stood at $28.5 billion, a slight decrease of 12.63% compared to the previous year.

The increase in long-term debt can be attributed to the impact of the COVID-19 pandemic, which disrupted the cruise industry significantly. During the pandemic, Carnival's operations were halted, resulting in a complete loss of revenue. This led the company to take on additional debt to stay afloat.

The implications of Carnival's increasing debt are twofold. Firstly, it indicates that the company has been struggling financially, particularly during the pandemic. The suspension of sailings and the inability to generate revenue during this period contributed to a higher debt burden. Secondly, the company's profitability will be affected in the coming years. The interest payments on the substantial long-term debt will eat into Carnival's earnings, impacting its bottom line.

Additionally, the company's finances will take time to recover, and it may not return to its pre-pandemic profitability levels anytime soon. Analysts predict a return to modest profitability in 2022, with a longer road to recovery ahead.

However, it's important to note that Carnival has raised more money than any other cruise line, positioning itself to withstand prolonged challenges in the industry. The company's financial resilience and its status as the world's largest cruise operator could make it a viable investment opportunity for those with a higher risk tolerance, a long-term investment horizon, and a belief in the future of cruising as a vacation option.

The future of the cruise industry

The cruise industry has been one of the worst-hit sectors during the COVID-19 pandemic. Departures from US ports essentially stopped in March 2020 and have only recently started to resume. The industry began its return in early 2022, but the restart was slow, and the cruise industry still faces challenges due to the lingering effects of the pandemic.

Another critical factor in the future of the cruise industry is its environmental impact. While the industry claims to meet or exceed international environmental regulations, there is ambiguity and a lack of enforcement regarding these regulations. The industry must address concerns about greywater, incinerators, and wastewater treatment systems to demonstrate its commitment to sustainability.

The cruise industry also needs to address labour practices, including long working hours, low wages, and limited worker rights. By treating their employees more equitably and responsibly, the industry can improve its sustainability and social responsibility.

In terms of investments, Carnival stock is considered riskier than it was before the pandemic. However, if you believe in the future of cruising as a vacation option and are willing to be patient, it could be a good investment. The company has sufficient cash to keep itself afloat through March 2023 without needing to sell stock or take out loans, and there is expected to be huge pent-up demand for cruising once the pandemic is truly tamed. However, it is important to note that Carnival is not expected to return to its pre-pandemic profitability anytime soon, and there are risks associated with the investment.

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