Carnival Stock Is Set to Sail Higher This Summer
For much of the year, Carnival Corporation (NYSE:CCL) traded in a steady uptrend. Unlike last year, when the world did not have a Covid-19 vaccine rollout, CCL stock stands a better chance of rewarding investors. The stock continues to find support on the 50-day moving averages.
What are the positive catalysts ahead for Carnival and the cruise line sector?
Summer Sailings To Lift CCL Stock
Carnival posted on July 10 its plans for the next wave of the summer restart of cruises returning to sea. In July, Mardi Gras will start her seven-day cruises. In August, several ships will also return from their dry dock. For example, Carnival Magic will resume her four- and five-day cruises to the Bahamas and the Caribbean. Carnival Sunrise will start sailing on Aug. 14.
Ahead of the restart, CCL shares are up by 30% in 2021. Even if more contagious variants of Covid-19 emerge, Carnival has rules to minimize its spread. It has a guest protocol that promotes maximum health and safety for guests. The company follows the U.S. Centers for Disease Control and Prevention on its website, first and foremost.
To take it a step further, Carnival has vaccinated cruises for guests who received their final dose. At embarkation, guests present proof of vaccination. The cruise line does not need to test those guests. Still, enhanced health screenings include an online health questionnaire 72 hours before sailing. Anyone who has symptoms of Covid-19 is subject to additional medical screenings.
The extra precautions benefit everyone. Carnival does not want a virus break out while at sea.
Fair Value
On Wall Street, almost half of the 13 analysts rate the stock as a “buy.” The average price target is almost $30, according to Tipranks. Conversely, Stock Rover calculated a 44% upside in the stock based on its enterprise value-sales ratio.
Despite poor value, growth, and quality scores, Carnival is a potentially rewarding investment. The scores weakened due to worsening quarterly earnings. This will reverse once sailings resume.
In an upside scenario, relaxed masks and social distancing rules will put customers at ease. This will drive bookings higher throughout this year. Carnival’s revenue re-acceleration improves as it expands its restart to more regions. This includes California, Washington, and Texas.
It is working with state and local states to finalize the restart plans. With each approval, Carnival shares may respond positively.
Risks
In the first quarter, Carnival reported revenue of just $26 million, down 99.5% from last year. It lost $2 billion, or a loss of $1.80 a share on a GAAP basis. Markets ignored the weak fundamentals because of the shutdown. At current levels, the market is assuming a strong business recovery. The positive sentiment may shift suddenly.
Last week, the Federal Reserve said it would move up its timeline for interest rate hikes, due to inflation risks. This policy change would increase the cost of carrying Carnival’s high debt. In its filing, the company had principal payments of between $300 million and $600 million due in the next four quarters. But the $23.6 billion cash raise since March 2020 is more expensive to service with higher interest rates.
In the chart, trading volumes peaked in November. Shares found support on the red 50-day moving average and remain on an uptrend. Last Friday, June 18, the stock found support again at the moving average.
If the stock market weakens, CCL stock may find support at the 200-day moving average at $25.
Related Investments
Investors could consider Royal Caribbean (NYSE:RCL) too. The company trades at a lower market capitalization. It also has higher risks, with a debt-equity ratio of 2.28x. Carnival has a debt-equity ratio of 1.58x. Norwegian Cruise (NYSE:NCLH) has the highest debt-equity ratio of 2.79x. If the cruise line industry is booming again, NCLH shares could offer more upside than that of Carnival stock.
Carnival is the most balanced travel services stock among the three choices. It has a manageable debt. And as the restart schedule expands, revenue will return to pre-pandemic levels within a few years.
On the date of publication, Chris Lau 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.
