Carnival’s Recovery Is a Ways Away, Says Analyst

There’s no relief on the horizon yet for the beleaguered cruise line industry. On June 19, the Cruise Lines International Association (CLIA) announced all cruise operations will remain suspended until September 15.

The announcement followed a disquieting quarterly report from struggling cruise line Carnival (CCL). In fiscal Q2, the world’s largest cruise operator lost $3.30 per share, more than double the Street’s $1.52 call. Revenue of $700 million also came in far below the $1.13 billion consensus estimate.

For Deutsche Bank analyst Chris Woronka, the results are “of little consequence.” Cruise lines saw no action for virtually the whole quarter, and have been busy making sure the books are in order to keep themselves afloat while chained to the harbor. The analyst tells clients he is more concerned with what happens next.

Carnival estimates that for the fiscal year’s second half (June- November), it will burn through $650 million a month. Woronka projects that with “complete suspension of operations and no further cost reductions,” the company has more than 11 months of runway.

However, Woronka believes Carnival will be back at the hole in the wall shortly for more cash.

The analyst said, “It’s unclear if CCL’s cash burn forecast assumes any incremental interest expense likely to result from the $2.4 billion of debt that it expects to refinance over the next 12 months. In the release, CCL notes that it ‘expects to further enhance future liquidity, including through refinancing scheduled debt maturities.’ In our opinion, it’s more likely than not that CCL will raise capital beyond the level of near-term maturities.”

Looking ahead to the resumption of cruises and next year’s schedule, CCL said the booking levels for 2021 itineraries currently on offer are “within historical ranges” although prices are down “low to mid-single digits.”

Additionally, during the six weeks leading up to May 31, booking volumes for 2021 were “meaningfully behind” last year’s levels.

In any case, according to Woronka, the numbers are insignificant as long as the coronavirus rages on. “Net, the update doesn’t change our view that there remain several key hurdles before broad-based sailings can resume and we think some sort of incremental, widely available medical breakthroughs for COVID are necessary for there to be widespread confidence among consumers,” he explained.

All in all, Woronka keeps a Hold rating on Carnival along with an $11 price target. This conveys the analyst’s belief shares could drop by 38% over the coming months. (To watch Woronka’s track record, click here)

Woronka’s take is backed by the rest of the Street. 3 Buys, 11 Holds and 4 Sells add up to a Hold consensus rating. The average price target, while more forgiving than Woronka’s, at $16.71, still indicates downside potential of 6%. (See Carnival stock-price forecast on TipRanks)

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