Carnival Vs Royal Caribbean Stock: Which Is Best?

Carnival Corp (NYSE:CCL) and Royal Caribbean Cruises Ltd (NYSE:RCL) stocks sank in 2020. When widespread global travel restrictions were enacted some cruising vessels were stuck out at sea without a port. This caused complete chaos in the $150 billion industry, as grounded cruise ships became the first symbol of COVID-19’s effects.

But with the economy slowly reopening, cruise lines are starting to test the waters. Investors wanting to dip their toes in debate between Carnival vs Royal Caribbean stock.

It seems government policies to reopen economies hinge on mass vaccinations, which are still in the early stages. Both Pfizer (PFE) and Moderna (MRNA) showed efficacy that resulted in emergency authorization use of their vaccines in several countries. This gives investors hope that travel will return to normal. Both airlines and cruise operators are working hard to make ships and vessels safe.

Is it enough to keep these stocks afloat?

Is Carnival Stock A Buy?

Carnival stock dropped from a 52-week high of $51.94 pre-pandemic to a low of $7.80 in the aftermath of the crash. The stock since recovered to the $20 range upon late November and December’s announcements of positive COVID-19 vaccine results from both Pfizer and Moderna.

The company had offered an attractive dividend yield of 9.20 percent when it was paying shareholders. The $0.50 quarterly cash dividend payout was suspended for the pandemic, and the last payment was paid March 13. It’s unclear if or when it will resume.

Both the company’s revenue streams (ticket sales and onboard purchases) were strangled. Third quarter earnings reports showed $31 million in revenue, a 99.5 percent year-over-year drop from $6.53 billion in 2019.

Still, the company has strong cash reserves of $8.2 billion, and stay-at-home orders in 2020 caused an increase in bookings for 2021. This gives Carnival bulls reasonable hope that it’s a value Buy for the rest of the year. But is it stronger than Royal Caribbean?

Royal Caribbean Reported A Massive Loss

Royal Caribbean stock also dropped from its pre-pandemic highs. It sank from $135.32 to a low of $19.25 per share. 

It had an annual dividend yield of 4.2 percent. However, it also suspended quarterly cash payouts in 2020, with April 6 as its last payment date.

The company reported a net loss of $1.2 billion in the third quarter of 2020. This was adjusted to a $33.69 million loss and fell far short of analyst expectations. This caused the stock to struggle a little more than Carnival to recover and could be a signal of weaker future growth.

Still, RCL share price is higher than from the onset of the pandemic. Should the economy recover, both cruise lines have a chance to avoid insolvency. When the economy will bounce back or if it ever will look like it did before remains unclear, and that creates risk for investors.

Are these stocks just sinking ships?

Carnival Faces Enormous Challenges

Cruise lines were hit harder by the coronavirus outbreak than airlines because of the customer experience. Flights being grounded didn’t leave anyone stranded in the air. But over 300,000 people, including 50,000 workers, were stranded at sea aboard cruise ships as government travel restrictions closed global ports.

These companies are facing more problems than the average industry because many of their staff remained stuck at sea for months. Several voiced concerns in the media and apprehension about returning to work. This includes ship captains, kitchen and bar staff, and entertainers.

Carnival had $770 million monthly cash burn in the third quarter of 2020, which it hopes to drop to $530 million during the holiday season as it finds ways to monetize its resources.

Much of this monetization is in the form of decommissioning ships and selling the pieces as scrap. Cruise companies may be in for a longer recession than they think.

Royal Caribbean In A Cash Crunch?

Like Carnival, Royal Caribbean faces issues with shrinking its fleet and fighting a public relations nightmare. By October, it held a secondary stock offering and senior convertible notes sale to raise $1 billion in liquidity to pay high daily operating costs.

While its ships are grounded and unable to take passengers, they’re costing over $250 million each month. The longer travel restrictions stay in place, the longer the company is losing money. It’s a global problem every country is treating differently, and it’s not just cruise lines that are dependent on the income.

Around the world, excursion companies are without income. You don’t spend the entire cruise on the ship – they stop at different ports for passengers to get off and experience the local culture. That tourism sector is shut down and may not be easy to pick back up in third-world countries that may not recover as quickly as the U.S.

Royal Caribbean Vs Carnival Stock: The Bottom Line

The cruise industry is one of the worst hit from the global pandemic. Cruise lines were effectively shut down, and a massive fleet was stranded at sea when global seaports closed. The problem lasted for months, and it affects more than those on board.

Still, the cruise industry is doing its best to ensure a safe cruise experience moving forward. It’s slow to reopen and minimizing fleet sizes to maintain costs.

Any investment in the cruise industry is a risk, as the ships and port excursions both got strangled. If the third-party vendors at ports are no longer able to survive, it could put the companies at risk even if they do recover. That’s a problem the airline industry doesn’t necessarily have.

There are rocky waters ahead, but if you can stave off seasickness, there could be profits to be made in the long run.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.