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Carnival Stock Remains Dead in the Water

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·3 min read
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Carnival (CCL) cruise ship on water in front of beach with chairs
Carnival (CCL) cruise ship on water in front of beach with chairs

Source: Flickr

Each time it seems like the cruise line operators are rebounding, they end up selling off again. On June 16, Carnival (NYSE:CCL), Norwegian Cruise Line (NYSE:NCLH) and Royal Caribbean Cruises (NYSE:RCL) each fell more than 11% in a single trading day on growing fears that a recession could lead consumers to put travel plans on hold. Miami-based Carnival has led the pack lower in 2022, with CCL stock down nearly 57% year to date.

Few if any industries were as hard hit by the global pandemic as the cruise line industry. The U.S. cruise line companies lost an estimated $32 billion in 2020 as ships were stuck in harbors, and more than 250,000 jobs were eliminated. For its part, Carnival lost $10.2 billion in 2020 and increased its debt load to more than $36 billion.

Even now, with the pandemic largely behind us, Carnival said its occupancy level was just 54% during the first quarter, down from over 100% prior to the pandemic. And the company posted a net loss of $1.9 billion.

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While Covid-19 is no longer front and center for Carnival, the company is now dealing with new challenges that include sky-high fuel costs, a worker shortage, and waning demand due to persistent inflation and rising interest rates.

CCL

Carnival

$9.60

Carnival’s Outlook Remains Uncertain

It’s unclear where the cruise line industry goes from here. Analysts and investors were hoping for a rebound in CCL stock as pent-up travel demand was unleashed. But that optimism has been replaced by concerns of economic recession and a halt in consumers’ travel plans. Carnival recently lowered its planned capacity growth to 2.5% a year, down from a previous estimate of 4.5% a year, indicating slower ticket sales for its cruise ships.

Still, Carnival continues to plan for the future. The company has removed 19 of its least efficient ships from service as part of a global fleet optimization and right-sizing strategy, which it hopes will help it return to profitability. The company now has a total of 23 cruise ships in operation around the world.

Yet, the company’s debt load continues to be a concern on Wall Street. On May 18, Carnival said it is offering $1 billion of unsecured debt at an interest rate of 10.5%, which matures in 2030. Since the announcement, CCL stock is down more than 30%.

Don’t Buy CCL Stock

Carnival’s debt load of more than $35 billion is reason enough for investors to avoid CCL stock. Add in the slow return of travelers, ongoing financial losses and increasing odds of economic recession, and buying shares now looks foolhardy.

With the cruise line operator struggling to recover from the ravages of the pandemic and new headwinds churning up the waters, investors would be wise to stay away from CCL stock.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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