In theory, this should be a smart time to shop around at the world’s largest cruise line operator. This is a fair bet Carnival (NYSE: CCL)(NYSE: CUK) and its smaller counterparts will start sailing again at some point this year. We are in the early stages of the vaccination process, which should ideally put an end to the pandemic that actually shut down the cruise industry.
The priority of senior citizens for access to the COVID-19 vaccines makes this big news for an industry where pensioners are a lucrative target audience during non-peak pieces in the cross season. Last week Carnival, Royal Caribbean (NYSE: RCL), en Norwegian Cruise Line Holdings (NYSE: NCLH) all postponed their return to sailing from April to May. We can finally get to the point where goal posts are planted in cement. Is the worst over for Carnival? The stock is trading 72% lower than its highest year three years ago, but there is more to this story than you can see.
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Tilt the boat
There are many things Carnival has been doing in silence since the last of its revenue-generating cruises closed more than ten months ago. Carnival streamlined its fleet by unloading its less efficient ships. Just last week, he announced that he was selling Pacific Princess, one of his smaller boutique boats. Carnival also cut its overhead to the point that its monthly cash-burning rate is $ 530 million a month.
Carnival has increased its liquidity to stay afloat next year if the disruptions continue, but survival is expensive. The inflated stock and the expansion of long-term debt kept the stock in the share of the stock high, even as the stock sank. At the end of November of that year, Carnival ended the fiscal year with its share at $ 45.08 and an enterprise value of $ 41.7 billion. A lot has happened in the 14 months since then, and most of the news has been negative. Despite the stock kicking off the new trading week at less than half the end of the fiscal year, the value of the business is about $ 39.7 billion.
In other words, the market believes that Carnival is worth about as much as before the pandemic, even though individual investors who own the stock have lost more than half of their value since the end of fiscal 2019. Bulls hope the stock it will do return to its recent highs, not realizing that Carnival’s value as a company is already at the pre-pandemic level. They just got stuck with what is actually a 2-for-1 stock split without receiving any additional shares.
The worst is apparently over in terms of fundamentals. Revenue growth will be positive as soon as Carnival sails again, as we will have already dropped last year’s interruption in mid-March. Analysts see that Carnival is losing half as much money per share this year as in 2020, but there are many variables in the consensus forecast.
The future is bright. One could even argue that Carnival will be even better in the future. It will have fewer ships, and the berths that are not supplied according to the pent-up claim are probably already being discussed with bookings already made of guests applying credits of canceled voyages to future voyages. As the largest player in the industry, Carnival is also very fit to survive the inevitable shake-up.
The strong argument for stock rebounding is more nuanced. Carnival is not a share of value just because it has fallen sharply over the past year. It has largely the same operating value as it ordered a year ago, even if it achieves less than half the price. The basics of Carnival will improve in a few months, but it will take more than that to make Carnival shares.