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Carnival Corporation: Another Cruise Liner Set To Double

The Asian Investor profile picture
The Asian Investor


  • The cruise line sector is far from dead, despite growing debt problems medium term.
  • Carnival has asymmetric risk skewed to the upside.
  • Carnival's booking trend shows that demand is going to return instantly once no-sail orders are lifted by the CDC.
  • Cruise liners, including Carnival, are massively undervalued relative to their true earnings capability.

Cruise liner from above shot by drone in bay of Patong Phuket Thailand
Photo by Elias/iStock via Getty Images

Cruise liners with suspended operations including Carnival Corporation & plc (NYSE:CCL) have the potential to double their valuations once no-sail orders are lifted and the sector returns to service. A successful vaccine roll-out

This article was written by

The Asian Investor profile picture
I look for high-risk, high-reward situations. Five largest portfolio holdings: Bitcoin, SoFi, Alibaba, PayPal, Western Alliance. Early buyer of cryptocurrencies. I live in Thailand :)

Analyst’s Disclosure: I am/we are long NCLH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (102)

dan99 profile picture
Food for thought,,,one commercial air craft 200 passengers 5 flights a day,,1000 passengers guest,,7 days,,7000 passengers,,guestimate for your self the tax per person, income tax per employee supported, persons exposed if one infected?? Cruise ship 3500 guest, HALF THE PASSENGERS. money spent off shore, employee paid off shore, END of story....Not saying some improvements were not in order but ate the end FOLLOW THE MONEY..THIS IS SIMPLE,follow the money CDC HATES CRUISE SHIP INDUSTRY but not AIRLINES.
@dan99 Dude, I'm long CCL and well put! I would like to see a Senate investigation as to why EVERYTHING ELSE IS OPEN but not cruises!!
Think Long Term profile picture
They won't be profitable for decades. Bookings might be up but they are giving cruises away for nothing. So much debt and dilution. Only recourse is chapter 11 and wipe out debt and shareholders. No way this stock is worth more than $5
Btw...I love how the CEO of Carnival just said that we aren't going to track whether people are vaccinated and if the CDC doesn't do what we want, we'll just home port somewhere else. The CDC could just make it a requirement that any cruise line with a corporate office in the US that sells a ticket to an American citizen must have proof of vaccination before letting them onto the boat.

After a year of not being able to operate their business, being openly combative on CNBC is not exactly going to help your cause. This is the kind of stuff that pisses off regulators and will make them not want to help you out.
@Tntowldct not sure if the government can mandate vaccinations... period. i suspect that blue states would have tried that by now....
@crazy-like-a-fox There's a huge difference between mandating it for a voluntary trip and daily activities around town. Cruise lines require you to have a passport before you board and asking a guest to include a copy of a proof of vaccine before boarding is not crazy. It's not hard to enforce that.
@Tntowldct not sure i agree. CA can mandate students get covid vaccine as a requirement to attend public schools, but the fed government cant mandate vaccines to private businesses. I believe SCOTUS would call this violation against "freedom of expression". I havent seen any such mandates placed on private businesses yet - and we've been in this pandemic for 14 months now.
The only way you could convince me to invest in this space is if someone started a new cruise line tomorrow from scratch and picked up the boats at a significant discount from these zombie companies.

Owning cruise lines may still be a viable/long term business, but these debt ridden companies are on a glide path to single digit share prices or bankruptcy. When you buy carnival stock today, you are essentially saying that you are comfortable standing in line behind the mountain of debt to get paid your money back even though there is zero revenue right now and for at least the next 4-6 months.
@Tntowldct CCL total revenue in 2019 was 20.8 billion. CCL earnings release today stated their bookings for 2022 are already HIGHER than 2019. Also they have 12 billion in cash (according to today's release). With a burn of 500 million per month, but revenues coming in at 300 million per month (with that trending higher month over month), these are tailwinds that will see CCL gain 50% more from here. The only thing that can stop this momentum would be another NEW pandemic that rivals Covid19.
@crazy-like-a-fox CCL has increased its share count by 80% over the last year and has huge debt service costs to pay back and new build ships to pay for that the deferred during covid.

To get to 2019 earnings PER SHARE numbers, CCL needs to earn double in net profit what they did in 2019. It's not happening.
@Tntowldct dilution and debt are concerns... sure. i suspect as ships hit full capacity, their prices will increase, thus increasing their margin that will allow them to repurchase shares and pay down debt. all of these are bullish.
OverTheHorizon profile picture
Excellent. Nothing to add other than Saudi’s have a 6% stake:
@OverTheHorizon ooh... i did not know this. another tailwind!
Reading is never enough profile picture
@crazy-like-a-fox the saudis is the reason that carnival exists today.
@myrtovlachaki i'll take it....
CCL traded at 72.7 three years ago.At that time there was 710 m shares outstanding , including stock grants
That translates to a market cap of 51.6.b and an EV of
about 61 b
As of 11/30 CCL had 28.38b in debt and 9.55 in cash for net debt of 18.83 in net debt.
CCL raised 4 b earlier this year via a 3.5 bond offering and a 500m stock offering .It is estimated that CCL is burning 550m per month . That would mean that by 6/30 , CCL cash position increased only by 250m but it’s debt increased by 3.5, resulting in net debt of about 21b
Assuming that there are 1.2 fully diluted shares , that would translate to an EV of 57b.
It is guaranteed that CCL will burn more cash by the end of the year and that more cash will have to be raised via stock and bond offerings later this year.
By the end of the year,CCL will have an EV almost equivalent to its all time high EV if the stock trades at 30.
CCL is a strong sale above 30.
To use weighted average diluted shares for stocks which have issued new stock via a number of secondaries and convertible issues is at best wrong and at worst deceptive.
CCL has 1.157 billlon shares outstanding ; that does NOT include stock grants and shares to be created via convertible bonds.The true number of shares will then be close to 1.2billion
A cruise "liner" is a ship; a cruise "line" is a company that offers cruises.
There are thousands of stocks out there. Why look for trouble in cruise ships with all the uncertainties? Not for me!!!
psacards profile picture
That ship already sailed.
This may quite possibly be the worst title I have ever read. "Another Cruise Liner Set To Double" huh ????????? In what world do any of these debt ridden bloated cruise lines deserve to double? They're all trading at least 2/3 of all time highs with an extremely heavy debt burden and no clear path to the full pre-covid revenue. Would not even read this if my life depended on it. The prices of all cruise lines should be CUT IN HALF from current levels, there is no longer any real value in these companies. With an article like this, we are near the top! Everyone monitor their assets closely, this article is a sign of the upcoming shit storm.
Beyond the stock dilution that has been incurred by all cruise lines (vs. cruise liners) this past year, CCL has a unique disadvantage compared to its peers: that of cabin design. Perhaps the majority of CCL ships (including HAL, Princess and Carnival) have been designed with cabin doors that vent HVAC directly into passenger space (hallways), whereas the majority of ships in RCCL and NCL have solid cabin doors and exhaust cabin air external to the vessels. This creates significant potential in the long term value equation.
Maybe ten years ago my brother took his wife and kids on a cruise. They all were knocked the "eff" out for days by a norovirus, stuck in their dinky room. This is apparently par for the course when you are cruising. I never have given a thought to booking a cruise, and I never will. No thanks.
@MikeHesq What does this have to do with Stock Price?
@MikeHesq you know, you can hate a company but LOVE the stock!!
@MikeHesq Golly, one day 15 years ago, I caught a cold from touching a door knob. Had to miss kissing my wife goodnight because I didn't want her to catch it. I'll never buy stock in a door company or building company or even buy a house. EVER!
While there is certainly pent up demand for cruising (I'm ready to go myself), I don't think that's going to be enough to save the cruise company stocks. Being a good business and being a good investment are two completely different things.
Much like GM, Chrysler, and countless airlines in previous decades, I think the Carnival Cruise Line that you ultimately get to sail on may share the name with the old corporation, but it unlikely to share the stock.
You can argue that the cruise company's ability to raise debt and sell more equity are a sign of confidence in those companies - I see it as them just benefiting from all the easy cash splashing around thanks to the Fed looking for a place to gain yield.
At 12% or so that some of those debt offerings have gone for, I'd be tempted to buy some of those bonds...but I think a lot of that is eventually going to get converted into equity in the post bankruptcy company at pennies on the dollar.
The biggest thing the cruise lines have going against them compared to airlines or automotive companies - their offshore incorporation. They are not "American" companies - they have not and will not get any kind of bail outs or debt forgiveness from the U.S. Taxpayer. That will ultimately sink them, particularly the longer the no sail orders keep them bleeding cash every month.
lilsdad profile picture
Cruise lines had a hard time making ends meet at 100% capacity, how are they going to do at 50%? Will they double cruise fares?
Not so sure about all that pent up demand. New cruising rules will ruin the experience. Multiple covid tests, masks at (almost) all times, tracking bracelets, temperature checks, no more buffet style food, guided tour only shore excursions, possible quarantining, etc...etc...
Just one person on any cruise line contracting covid could shut down the entire industry again.
Rofl omg. Double .
Here is a hint - assign same net profit as 2019. Minus additional interest expense.
Divide by current diluted outstanding shares. You get a recovery eps.
Multiply them by 10 -12.
That's the recovered value of ccl.
Double to what? The company is valued similar to pre-covid levels now, with huge amounts of debt added to the balance sheet. At $10 or $15 or even $20ish per share I would agree risk favors buying them for a good trade, but not now. Even before covid they had interesting growth ahead, but the market was not favoring CCL. I don't see why now the situation has to change just because of pent-up demand; the balance sheet is much different and the dividend is gone.
The Asian Investor profile picture
@jopoib I don't see that at all. All cruise liners traded at much higher valuations. There is huge upside but you may of course disagree.
@The Asian Investor I think
A cruise liner is a ship
A cruise line is a company.
@The Asian Investor the higher PE from 2018 and those years might be one of the reasons why shares of CCL entered a correction phase before covid. I'm just saying the picture is not better now than before covid. Even if sailing returns this year, some limits to ship capacity will exist until all is clear. The balance sheet is in much worse shape and will take years to fix, the dividend might return in some form but my guess is not until at least 2023 or beyond... I cannot see a way to justify trading at PEs of 20 or more. Maybe 10s or 15s, but this is priced in already (or almost).
PennyPlanSupporter profile picture
Anyone familiar with the oil tanker stocks from 2013 to 2018 knows EXACTLY what dilution means for equity investors and what is coming for CCL longs.

Debt plus huge, ongoing PP&E costs is like being nibbled to death by ducks.
2tired2talk profile picture

British Petroleum after Macondo and Obama’s $30bb fine is another example.

Piles of debt and piles of new shares are a deep hole to climb out of.
@DeepValueLover that sounds like a cute way to die
I agree . Good article .
I don’t care about the share count .
I’m not in love the stock .
I bought 1,000 shares at 10 dollars last year & I’m going sit on my hands 🙌
& sell it when it hits 50 plus !!!
Probably in 1 year
@Shake your money maker why don't you care about share count? Do you not care about earnings either? Big difference between 2 or 5 or 10$ in earnings per share.
@Mcsabie not when he bought it at 10 and is selling it at 50. Duh
The Asian Investor profile picture
@Shake your money maker This looks like a big win for you!
Latest share count is in excess of 1.1 billion (see latest 10K) far in excess of what you are using in your calculations. You may want to re-do your analysis.
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