Carnival (NYSE: CCL) (NYSE: CUK) shares fell 57% in 2020 when the coronavirus pandemic halted sailings around the world. During the management of the pandemic, the company burned hundreds of millions of dollars a month to maintain ships and cover its expenses, and raised $ 19 billion through various transactions to withstand the economic storm in which it finds itself. Carnival’s ships Costa and AIDA have resumed limited operations over the past few months, but then stopped again as coronavirus cases increased in their European home markets.
There is some bright news on the horizon. Countries begin immunizing their citizens with COVID-19 vaccines recently approved. And the Centers for Disease Control & Prevention (CDC) last fall issued a framework for conditional sailing orders – guidelines to reactivate ships and their passengers.
Is it time to buy Carnival shares as the situation begins to improve? Let’s take a closer look.
Image Source: Getty Images.
Vaccinations and the latest order from the CDC
At present, government agencies have given the government emergency permission to Pfizer and Modern vaccines in the US, the European Union and several other countries. Mass vaccinations are the key to slowing down the spread of the virus and helping to convince the general public that it is safe to move freely again. This is good news for Carnival. The CDC’s latest order is also good news. This opens the door to the potential of sailing in the near future. This is an improvement on the CDC’s No Sail Order, which was issued last spring.
The management of Carnival said during a conference call in the fourth quarter that the cruise line had not yet set a date for test cruises – a requirement under the new CDC order. Test cruises involve sailing with volunteer passengers to confirm the effectiveness of new health and safety measures on board. Carnival has begun bringing ships back to the US, an important step before launching a test. Carnival said it is now awaiting CDC guidance regarding the timing of these tests.
Meanwhile, Carnival has prepared itself to withstand the worst-case scenario. CEO Arnold W. Donald said the company has $ 9.5 billion in cash and can sustain itself this year, even in a low-income environment.
Carnival has also made efforts to help its earnings in the future. The company accelerated the optimization of its fleet with a plan to get rid of 19 ships. 15 of them have already been removed. These ships represent only 3% of operating revenue in 2019. The move will reduce total unit costs by 2% and the unit’s fuel costs by 1%. The company also delayed the delivery of some newer ships.
Carnival has said it hopes to re-employ all of its remaining ships by the end of 2021. This, of course, will depend on the pandemic. If the vaccination effort lasts longer than planned, and the crisis continues, Carnival may not achieve its goal.
Take away investors
What does this mean for investors? It is too early to say whether Carnival will return all its ships to sea this year. But even if it’s not, I think Carnival’s rebound is just a matter of time.
Business management predicts Carnival will benefit from pent-up demand. Carnival said the cumulative advanced discussions for the first half of 2022 surpassed those of the same period in 2019. Another positive sign: About 60% of the bookings made for cruises in the 2021 financial year during the past quarter were new bookings and not bookings from canceled voyages. This shows that people do not book cruises just to use up prepaid vouchers.
Carnival still remains a risky stock because we do not know when the coronavirus pandemic will ease and therefore when the ships will sail again. If things improve quickly, Carnival’s shares could recover this year. If they do not, investors will have to be patient. We will also have to hope that Carnival can manage its cash levels and control cash burn rates. These are the key points to look for in future earnings reports.
So, yes, it is a good idea to buy shares of Carnival before taking it up again. But are you buying it now? This is only a good idea if you are an aggressive investor who can handle a lot of risks and is willing to be a little patient.