Is Carnival Corp (NYSE: CCL) a future growth stock?

Is Carnival Corp (NYSE: CCL) a future growth stock?

Stock Ticker

CCL ($CCL)

Stock Name and Trading Stock Exchange Platform 

Carnival Corporation & Plc – New York Stock Exchange (NYSE: $CCL)

– London Stock Exchange (LSE: $CCL)

The Stock Sector 

Carnival is a British-based tour operator company in the consumer services sector. It engages in the operation of cruise ships.

It operates through the following segments: North America and Australia cruise, Europe and Asia Cruise operations, Cruise support and Tour, and others.

It is a dual-listed company and is made up of the US-headquartered Carnival operations and UK-based Carnival plc. The former is headquartered in Doral, Florida while the latter has its headquarters in Southampton.

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Carnival boasts a wide array of ships in its fleet including Princes cruises, Carnival Vista, Carnival Spirit, Carnival Sunshine, and more (23 in total as of June 2022).

The company is one of the largest and best Cruise line enterprises in the globe. It was founded in 1972 by Ted Arison.

Recent News on Carnival 

Cruise lines stocks have slumped this week with concerns of rising inflation and the unpredictable economy cited as the main reasons.

Carnival has recovered and surged quite significantly over the week as the sector caught the attention of investors.

The company took a hit over the past two years, courtesy of the global pandemic. The Cruise Line sector was arguably the most impacted by the lockdowns, with operations coming to a halt. It has taken two years for the recovery to begin.

Companies in the sector have recorded nearly zero revenue, even negative numbers for maintenance expenses.

Carnival has had it rough in the period and even resorted to selling their ships, brand sales, and equity financing to remain afloat.

Carnival together with BETMGM, a fast-growing online sports betting company, announced that they will partner in a deal to put sportsbooks on more than 50 US-based ships.

If successful, this will allow sports betting while the ships are at the dock. This is splendid for the company as it diversifies into other prospective niches.

The German Aida cruise ship is now being terminated from Carnival’s fleet.

AIDAvita has served the company for over twenty years but will now be sold off.

This measure is one of many taken to remove less efficient ships and redeploy strongly to market.

Current Position of Carnival 

Carnival has been in an icy position, declining from its pre-pandemic levels. It is looking to restore itself to its former glory days.

A lot of pessimism has mounted around the stock, due to the sorry state of the cruise line market in the past two years.

Investment bank Morgan Stanley issued a warning over Carnival’s huge debt, just a week before Bloomberg had raised concerns regarding the same issue.

Morgan Stanley analysts pointed to weak sales, growing economic risks, and rising interest rates on the debt it owes.

Carnival has reported losses in the past quarters and has not registered profits following the Corona crash. The risks cited are valid but magnified to unrealistic proportions.

The company is an industry giant that will likely be around in decades to come. It has received quite a lot of attention recently that will catapult it forward.

A Stockwits commentary explains that we have no COVID depths stating,

With Blackrock and WorldQuant playing the shorts game it is no wonder the share price has crept down, however with the cruise industry coming back it’s looking good for the long haul.

Despite the negative views on the company, it gradually picked up an ace to get its fleet up and running.

The tempest may have turned the company upside down but this is now taking a turn for the better.

The commentary goes on,

There is a lot of doom and gloom around and we have the European situation, so I can’t see this rising too high, but it will in my opinion go higher over the summer and then we have the winter sun and that’s a great market for cruising!!

The company has reported an increased demand, especially as people yearn to resume the outdoors. There is always a demand for travel even in recessionary times.

The target market for Cruise line operators is the upper economic class that can well afford the cost, in good and bad times.

While most of the middle class is struggling and cannot afford such luxuries, the number of wealthy people is on the rise.

Studies reveal that in the past decade, the number of millionaires in the US alone increased tenfold.

When the markets get tougher, smart money always wins in the bear markets more than in the bull market.

If a recession occurs, which is highly likely, depression and anxiety cases will proliferate, and vacations will be much needed.

Market downturns are an opportunity for well-prepared investors who benefit from the sale of valuable assets at a cheap price. Carnival’s client base, therefore, seems ripe for growth.

Carnival’s CEO, Arnold Donald forecast that they will be able to have as much as 75% of total capacity this year.

Things may not be normal immediately but the industry will explode in the decade as demand resurges.

The company is a big player that will resurface with a vengeance, especially after the uncertain global events.

Stock Price Chart

The stock is trading at $9.38 as of the 6^th of July 2022. It is up by (+6.35%) from the previous close. The stock is trading at a day range of $8.15- $9.41.

It has traded at a 52-week high of $27.39 and a low of $8.10. The average volume of shares traded is 52.31M. The stock is down by -10.58% in the past week and -31% in the last month.

The company has been adversely affected by the market swings. It is down by -55% in the past six months and -62.51% in the past year.

In its heydays, before the pandemic, the company was a big earner and performed exceptionally well. In the last five years, it has shaved more than 85% of its value.

The stock is at record lows at the moment having greatly fallen. The Russia-Ukraine conflict further added insult to injury for the company.

The stock is currently at a fair value given the insanely low prices.

Sentiment on Carnival

While the majority seems to be against the stock, a few contrarian investors see a chance where others see doom.

The company is beaten down and is almost at the point of revival. Even though institutions and big firms are backing out this stock, Carnival can emerge better and stronger.

They have been a dominant player in the space for decades and will not go down soon.

Other Cruise line companies like Norwegian Cruise Line are showing signs of rebounding as the sector is up positively.

As the market goes awry, cheap stocks will suffer less severely. They also have great fundamentals and physical assets that have utility beyond temporal market conditions.

Pros of Carnival based on Investors Outlook

• Cheap price – The stock is trading at under $10 which is very attractive for a $10B company. At a forward P/E ratio of just 8x, the stock is a bargain.
• Increasing Fleet operations – With the pandemic subsiding and things resuming to normal, a huge demand exists for travel services. Remote working is also here to stay and people can work from anywhere in the world that they are comfortable. Nothing beats the comfort of a Cruise liner and occupancy will trend higher.
• Pandemic-free world – As the pandemic becomes endemic, the restrictions will be lifted and more people will crave to return to the physical world. The pandemic is in the last phase and slowly dying down.
• Recovering industry – After two years the cruise ship industry is finally coming back and it will return with a bang. The experience offered is priceless, which many have realized following the lockdowns.

Cons of Carnival based on Investors Outlook

• Shaky balance sheet – Investors are worried that the company is in a precarious position financially. Carnival’s debt-to-equity ratio shot up from 54% in February 2020 to more than 350% at present. Although this is scary, the company has not operated during this period and the years of operation ahead will decide its future.
• Huge sell-off by Institutions – Institutions have overblown the carnival’s situation and have exited in mass from the stock. This will trigger panic selling and the stock might suffer in the short-term.

Profits for Carnival Corp

The firm has not had meaningful activity in the past two years thus no significant profits were recorded. However, guidance for the coming quarters anticipates that this is likely to change as operations fully commence.

Revenue for the company surprisingly increased by (+6142%) recorded at $1.62B in February 2022. Net income was recorded at -$1.89B, but was still up by +4.16%.

Their total liabilities increased, registered at $42.97B. This has been due to efforts to keep the company alive. The net profit margin was at -116.51%, increasing by +98%.

Losses were reported at -$1.5B and a similar negative free cash flow of -$1.5B was recorded. The financials look ugly, but not bad for a virtually functional company.

Carnival Corp had to go into debt to interest costs which were as much as $368M.

Profits are expected to rise as Carnival Corp swings back to profitability and cover its losses and debt.

Projections show that by 2023, Carnival Corp could generate over $1B in profits. This will be a huge win and the stock will soar as a result.

The company has missed analyst estimates for the past quarters. This has reduced confidence in the stock but the journey ahead is very promising.

Pros for Investing in Carnival Corp based on the General Outlook

• Recession resilient stock – The company is essential to global travel and the demand will remain as long as there is a working population.
• Expensive Road trips – Rising fuel costs are taking their toll on consumers making it very inconvenient to have a road trip. Many will opt for Cruises as they are more exciting and luxurious for nearly the same cost.
• Undervalued – Carnival Corp is very undervalued compared to other players in the same space. It thus has huge room for growth.
• Established industry giant – The company is known globally for its excellent services and has a loyal customer base to enjoy its Cruises.

Cons for not Investing in Carnival Corp based on the General Outlook

• Rising fuel costs – Pressure is mounting due to the sky-high price of crude oil. This hugely impacts the company as they burn massive amounts of oil in their voyages. Hopefully, the price of oil levels will lower as production increases.
• Global tensions – Global events like geopolitical tension, inflation, and other events have curbed the growth of the company. Carnival also faces stiff competition from its peers.

Growth Likelihood for Carnival Corp and Potential

Although it seems very bleak at the moment, the company is set to do well in the coming years. The trend is finally in their favor and as things get back to normal, Carnival Corp could do well if they significantly scale operations.

The CCL stock is a value play and will do exceptionally once they get back on their feet. Even though they have been ranked as one of the worst performers in the sector, they have the advantage of a network and a strong brand.

CCL is a great example of contrarian investing, being greedy when everyone is fearful. It employs over 40,000 employees directly and is a solid company.

Overall Verdict on Carnival Corp

The stock is a high-risk/high-reward play. It is at its cheapest and the industry is getting back in gear.

The Carnival Corp stock could be an amazing growth opportunity once it takes off.

This makes Carnival Corp CCL a worthy stock pick you should consider adding to your investing stocks and shares portfolio.

Moving averages and Oscillators are neutral on the stock. Carnival Corp is an overall buy and could see potential downturns with a market crash. This would be an awesome chance to buy more CCL.

Carnival Corp has faced rough waters and the sail ahead may be a little windy, but in foresight, CCL should go up astronomically.

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