Is Carnival Stock A Sell?

Carnival Corporation (NYSE:CCL) is the largest travel leisure company in the world, with over 100 ships sailing under nearly a dozen brands.

The company fell on hard times during the pandemic, as cruises became a hotspot for coronavirus outbreaks and travel restrictions choked the company. This caused the company’s stock price to plummet to a low of $7.80 before recovering on hopes for a brighter economic outlook.

Looking to the foreseeable future, earnings expectations for Carnival look bleak, so is Carnival stock a Sell?

You’ll have a different price target, depending on when you actually bought in. CCL share price traded over $60 per share for much of the late 2010s but was already on the downswing when the pandemic hit. One of its brands, a German subsidiary called AIDA Cruises, is open for business this holiday season with routes to the Canary Islands.

Profitability will be choked by social distancing rules and unclear demand for holiday cruises. This puts investors in a precarious position, as the stock could very well hit more turbulent waters in the next two years, along with a tidal wave of financial problems.

Let’s set sail into Carnival’s history and road map to determine whether the company can navigate through the choppy waters.

Why Did Carnival Drop?

COVID-19 virtually eviscerated the cruise industry. No company was left unscathed, including Carnival rivals: Royal Caribbean (NYSE:RCL) and Norwegian Cruise Line Holdings (NASDAQ:NCLH).

To survive the year, the company announced a $1 billion stock offering and plans to reduce ship capacities when it does reopen. Rivals had similar problems.

This caused the entire cruise industry to lose much of its nearly 40 percent gains several times throughout the year and even after the November market rally.

Most recently, Carnival stock has shown signs of a resurgence based on hopes that the company may start to reopen cruise lines soon.

Some investors forecast that it will still underperform the market through at least early 2021. Organizations like AARP are disseminating specifics to the biggest cruising demographic – seniors.

Despite flu season and a second wave of coronavirus incoming, the U.S. Centers for Disease Control and Prevention (CDC) recommends reopening the industry through a phased approach. It could last through November 1, 2021, which is what investors need to understand before making a decision.

Is Carnival Stock A Sell?

Prior to the outbreak, the stock traded in the $50 range. That gives you an idea of the potential for the share price in “ordinary” times.

During the worst of the crisis, Carnival stock dropped to a 52-week low of $7.80 but it soon tripled from that low level.

However, there’s still plenty of room to fall. The company underperformed the market in the month following the U.S. election, gaining only 2.49 percent.

Growth may be faster over the next two months, but there’s bound to be plenty more bad news in the coming winter months. Carnival revenues show a virtual U over the FY 2020-21. They are comparatively extremely low during the Fall, Winter, and Spring months but there are hopes of a strong bounce back over the summer 2021.

While there’s more juice to squeeze from Carnival stock, it may not be worth the hold. Instead, selling and buying again ahead of next summer when it’s clearer how the year will go may be a more prudent strategy with this risky investment.

Risks Of Buying Carnival Stock

The biggest risks to Carnival’s stock are reinstated lockdown measures and a diminished consumer demand for cruise lines.

Consumer travel is expected to rise in 2021, and there’s good reason to believe that’s true. Extended quarantines and stay-at-home orders strangled many in the economy.

People are struggling without jobs or a way to put food on their plates. But even those surviving spent the past year mostly indoors. There is likely pent-up demand however among those with deeper pockets to get out and travel again when the coast is clear.

But that doesn’t mean cruise lines will necessarily benefit. When the pandemic hit, people flocked to state and national parks in record numbers. In fact, over 40,000 cruise line workers remained stuck at sea as ports closed the summer following the pandemic.

The company also halted its quarterly dividend payments at the onset of the pandemic. Its last payment was $0.50 in February 2020, as part of $2.00 annual yield that remained flat since 2018. The only time it raised dividends was between 2015 and 2018, which gives a signal of how much cash flow the company has in its coffers.

Nobody knows for sure whether airlines or cruise ships will be hurt from bad publicity suffered throughout the year that goes beyond the current outbreak concerns.

Will Carnival Stock Recover?

Major airlines are also trying to grow. The entire travel, hospitality, and tourism industries are about to experience a boom once the world governments ease travel restrictions. However, that could take at least six months, if not another year.

And Carnival is unlikely to reach its former highs for at least another couple of years as consumers behavior shies away from enclosed environments like cruises where risk of outbreak could mean being confined in a port.

CCL share price more than recovered from the bottom in 2020, but if you were holding it before then, it’s hard to be optimistic about a fully recovery of principal invested.

There is the option of dollar cost averaging in to lower cost basis now so that it won’t take as big a leap in share prices to get to breakeven. Consider the buy low/sell high strategy as a way to make up for the down year.

Is Carnival Stock A Sell? The Bottom Line

Carnival is the biggest consumer cruise company in the world, and both it and its competitors had their market capitalizations annihilated in 2020. Both the cruise and airline industries were shut down in mid operations, with many ships being stuck at sea as all ports closed.

Even when the rest of the market recovered post-election, Carnival struggled until news finally came in December that it is resuming cruises.

Revenue will finally be coming in, but it’s going to be a slow road. If you can afford to bailout, there are likely better places to put your money, but if you’re recovering from a loss, you could be waiting at least another year to return to normal.

---

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.