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Carnival (CCL) Surges 86% in 6 Months: Will the Rally Continue?

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Zacks Equity Research
·4 min read
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Shares of Carnival Corporation & plc CCL have gained 85.7% in the past six months compared with the industry’s rally of 41.8%. The company’s plan to resume sailing and improvement in bookings trend continues to boost investors’ confidence. However, high debt and coronavirus-related woes continue to hurt the company. Let’s delve deeper.

Factors Likely to Bring Carnival Back on Track

After coronavirus-led shutdown, the company stated that majority of its nine brands will resume sailing this summer on a limited basis. The company’s AIDA is already sailing from the Canary Islands and has got encouraging feedback from its German guest. Cost will begin sailing two ships from May. UK costal cruising will begin in June and August. Moreover, Cunard will have the first of its three ships sailing in July. The company further stated that this summer, Seabourn will provide ultra-luxury cruises and signature Seabourn moments sailing from Greece. The company is also openings its hotels and tour operations in Alaska this summer. The company’s 17 of the 19 less efficient ships have left the fleet.

Although bookings for 2020 have been significantly impacted by the coronavirus pandemic, the company stated that cumulative advanced bookings for 2022 are ahead of a very robust 2019 as of Mar 21, 2021. These bookings were achieved by negligeable advertising and marketing. Booking volumes have doubled in first-quarter 2021 compared with previous-quarter levels. Initial demand has boosted the company’s confidence, which gives an indication of price strength. The company believes the situation to remain dynamic over the next 12 months.

Carnival announced the addition of its new ship Enchanted Princess to its global fleet of Princess Cruises. The 145,000-ton unit, marks the first ship to have been completed and delivered amid the coronavirus pandemic. Currently docked at Fincantieri Shipyard in Monfalcone, Italy, the 3,660-guest ship comprises luxury Sky suites, entertainment venues, pools and whirlpool hot tubs.

Moreover, Carnival is the largest and historically, the most profitable cruise operator in the world. The company’s cruise brands are well diversified across diverse geographies, including Asia and Europe, and strategically positioned at various price points within the larger North American cruise market.

Concerns

The pandemic has been hurting the company’s operations and global bookings. Carnival believes that this coronavirus crisis is likely to cause delay in ship deliveries as the shipyards have been impacted as well. The company refrained from providing earnings guidance for fiscal 2021 due to the pandemic. Pause in operations will continue to hurt the company’s liquidity and results. The company anticipates reporting net loss on U.S. GAAP and adjusted basis for the second quarter and full year ending Nov 30, 2021.

Maintaining liquidity in the current scenario has become a herculean task for most of the companies. At the end of Feb 28, 2021, the company’s long-term debt stood at $26.5 billion compared with $22.1 billion at the end of Nov 30, 2020. Moreover, the company ended first-quarter fiscal 2021 with cash and cash equivalent of $11.5 billion, which may not be enough to manage the high-debt level. Moreover, average monthly cash burn in the quarter was $500 million, marginally better than the company’s expectation. It anticipates average monthly cash burn in first half of 2021 to be nearly $550 million, which is better than previous anticipations.

Zacks Rank & Key Pick

Carnival — which shares space with Norwegian Cruise Line Holdings Ltd. NCLH and Royal Caribbean Group RCL in the Zacks Leisure and Recreation Services industry — carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked stock in the same space is Camping World Holdings, Inc. CWH, which sports a Zacks Rank #1.

Camping World Holdings’ 2021 earnings are expected to increase 6.3%.

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Carnival Corporation (CCL) : Free Stock Analysis Report

Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report

Camping World Holdings Inc. (CWH) : Free Stock Analysis Report

Norwegian Cruise Line Holdings Ltd. (NCLH) : Free Stock Analysis Report

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