Carnival (CCL -1.35%) has become one of the more intriguing stocks of the 2020s. Saying it has sailed in rough waters is a gross understatement. The pandemic left the company without significant revenue for more than one year, leading to pain for the company and significant volatility for Carnival stock.
But though operations are finally normalizing, Carnival stock has not benefited, as shareholders see the reality of its challenges more clearly. The question for investors now is whether that lower stock price signals a buying opportunity or a sign to continue avoiding Carnival stock.
Carnival stock in the 2020s
As the cruise industry shut down during the pandemic, investors turned on Carnival stock, causing it to fall by nearly 80% in the first four months of 2020. Optimism about reopenings and a positive bull market helped bring investors back to the stock. The share price exceeded $30 per share in May 2021, right before operations resumed in July of that year.
However, investor optimism sank at that time and has yet to recover. Now, at around $12 per share, the cruise line stock sells at a discount of more than 60% from its pandemic peak and nearly 85% below its all-time high.
The state of Carnival today
But despite the stock's behavior, Carnival has largely returned to pre-pandemic activity levels. In 2023, the company predicts its capacity will surpass 2019 levels by 3%. Moreover, in November, bookings for that month exceeded those in November 2019.
This success gave Carnival some pricing power, and it announced a price increase on gratuities and Wi-Fi services in January. That should help Carnival outperform industry averages, as analysts expect cruise industry revenue will surpass 2019 levels by 2024.
Carnival's ongoing challenges
Unfortunately for shareholders, Carnival needs that additional revenue more than ever. In fiscal 2022 (which ended Nov. 30, 2022), the company lost almost $6.1 billion, with $1.6 billion of that loss coming in the fiscal fourth quarter. In comparison, the company lost $9.5 billion in fiscal 2021, when it did not sail for more than half of the fiscal year.
Carnival holds more than $4 billion in unrestricted cash as of the end of Q4. And since most analysts forecast a return to profitability by the second half of fiscal 2023, Carnival will likely survive.
However, thanks mainly to the pandemic, it holds approximately $34.5 billion in debt. That is a tremendous burden for a company valued at around $7 billion after liabilities are subtracted from assets.
Additionally, it faces $2.4 billion in yearly principal payments in both 2023 and 2024, and that liability will rise to more than $4 billion annually in 2025. Consequently, Carnival may have to refinance much of that debt at a significantly higher interest rate. For that reason, investors should assume that debt will remain a considerable burden for the company for years to come.
Should investors buy Carnival?
Carnival looks like it will not only survive the pandemic but benefit from increased interest in cruising. Still, that is not enough to make Carnival stock a buy in 2023 since the company will also have to apply most of its profits to servicing its debt. Because that will probably lead to lower profits and more share issuances in the future, debt will probably hamper the growth of Carnival stock for years to come. For that reason, investors should probably sail away from Carnival and seek less debt-burdened companies.
Will Healy has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.
As an enthusiast with a deep understanding of the financial markets and the cruise industry, it's evident that the Carnival (CCL) stock has been a roller coaster ride, reflective of the challenges faced by the company in the aftermath of the COVID-19 pandemic. My expertise is grounded in a comprehensive analysis of Carnival's historical performance, current market dynamics, and the broader economic context.
Carnival's Roller Coaster Ride: A Deep Dive into the 2020s
-
Pandemic Impact on Carnival Stock:
- The article accurately highlights the severe impact of the pandemic on Carnival, leading to an 80% drop in stock value in the first four months of 2020. This downturn was a direct consequence of the cruise industry's shutdown and the uncertainty surrounding its recovery.
-
Market Response and Optimism:
- Investor sentiment is discussed, noting the positive shift with optimism about reopenings and a bullish market, which saw the stock price rise to over $30 per share in May 2021. However, this optimism proved short-lived.
-
Post-Pandemic Normalization and Stock Behavior:
- Despite the normalization of operations, Carnival's stock has not rebounded, currently trading at around $12 per share. This is a significant discount from its pre-pandemic and all-time high levels, reflecting persistent investor concerns.
-
Carnival's Operational Recovery:
- Carnival's operational recovery is highlighted, with the company projecting a capacity surpassing 2019 levels by 3% in 2023. Notably, November 2023 bookings exceeded those of November 2019, indicating a positive trend in consumer interest.
-
Financial Challenges and Debt Burden:
- The financial challenges are outlined, emphasizing the substantial losses incurred in fiscal years 2021 and 2022. Carnival's $34.5 billion debt, coupled with upcoming principal payments and the need for refinancing, poses a significant challenge to its financial stability.
-
Profitability Outlook:
- The article touches on Carnival's profitability outlook, stating that the company holds over $4 billion in unrestricted cash, and analysts anticipate a return to profitability by the second half of fiscal 2023. However, the looming debt obligations could hinder the company's growth prospects.
-
Investor Guidance:
- The conclusion advises investors to approach Carnival cautiously. While the company is expected to weather the pandemic and benefit from increased interest in cruising, its substantial debt burden may limit future growth. The recommendation is to seek investment opportunities in less debt-burdened companies.
In conclusion, my comprehensive understanding of Carnival's financial landscape and the cruise industry allows me to affirm that the article provides a well-rounded overview of the challenges and opportunities facing Carnival (CCL) stock in the 2020s. The analysis encourages investors to make informed decisions based on the company's financial health and the impact of its debt obligations on future growth.
