Carnival (NYSE: CCL) (NYSE: CUK) stocks plunged 57% in 2020, when the coronavirus pandemic disrupted travel around the world. While managing the pandemic, the company spent hundreds of millions of dollars a month to maintain ships and cover its expenses, and raised $ 19 billion through various transactions to help weather the economic storm it is in. Carnival Costa and AIDA ships have resumed limited operations in recent months, but then took a new break when coronavirus cases increased in their European domestic markets.
There is some brilliant news on the horizon. Countries are starting to immunize their citizens, using recently approved COVID-19 vaccines. And the Centers for Disease Control and Prevention (CDC) issued a Framework for the Conditional Navigation Order last fall – guidelines for bringing ships and their passengers back into operation.
As the situation starts to improve, now is the time to buy Carnival shares? Let’s look more closely.
Image source: Getty Images.
Vaccinations and the most recent CDC application
At the moment, government regulatory agencies have granted emergency authorization to administer the Pfizer and Modern vaccines in the USA, the European Union and several other countries. Mass vaccination is the key to slowing the spread of the virus and helping to convince the general public that it is safe to move freely again. Good news for the carnival. The most recent CDC order is also good news. It opens the door to the potential for cruising in the near future. This is an improvement on the CDC’s No Sail Order, issued last spring.
Carnival management, in a fourth-quarter earnings conference call, said the cruise line has not yet set a date for test cruises – a requirement of the new CDC order. Test cruises involve navigation with voluntary passengers to confirm the effectiveness of new health and safety measures on board the ship. Carnival started bringing ships back to the United States, an essential step before a test launch. And Carnival said it is now awaiting CDC guidance on the timing of these tests.
Meanwhile, Carnival is preparing to endure the worst scenario. CEO Arnold W. Donald said the company has $ 9.5 billion in cash and can support itself this year even in “a zero-revenue environment”.
Carnival has also made efforts that will help its earnings in the future. The company accelerated the optimization of its fleet with a plan to dispose of 19 ships. 15 of them have already been removed. These ships accounted for only 3% of operating revenue in 2019. The move will reduce global unit costs by 2% and unit fuel costs by 1%. The company also delayed delivery of some newer ships.
Carnival said it expects to have all the remaining ships back in service by the end of 2021. Of course, that will depend on the pandemic. If vaccination efforts take longer than planned and the crisis persists, Carnival may not achieve this goal.
Takeaway investor
So, what does this mean for investors? It is too early to say whether Carnival will in fact bring all of its ships back to sea this year. But, even if it doesn’t happen, I think the recovery of the carnival is a matter of time.
The company’s management predicts that Carnival will benefit from the pent-up demand. Carnival said that cumulative early bookings for the first half of 2022 exceeded those for the same period in 2019. Another positive sign: about 60% of bookings made during the most recent travel quarter in fiscal 2021 were new bookings and not – canceled cruise reservations. This shows that people are not booking cruises just to use prepaid vouchers.
Still, carnival remains a risky stock because we don’t know when the coronavirus pandemic will subside and, therefore, when ships will depart again. If things improve quickly, Carnival’s stock could recover this year. Otherwise, investors will have to be patient. We will also have to hope that Carnival can continue to manage its cash levels and control cash consumption rates. These are key points to note in future earnings reports.
So yes, buying Carnival stock before it goes up again is a good idea. But buy them now? This is a good idea only if you are an aggressive investor who can handle many risks and is willing to be a little patient.