Carnival Expects Wider-Than-Feared 4Q Loss Amid Sailings Halt; Street Says Hold

Carnival Corp. said it expects to post a wider-than-expected loss estimate for the fourth quarter ending Nov. 30. However, the cruise operator’s cash burn rate for the quarter was better than previously estimated. Carnival shares closed 1.6% lower on Monday.

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Carnival (CCL) said that it projects to incur an adjusted loss of $1.9 billion in 4Q, compared to analysts’ expectations of a loss of $1.6 billion, as cruise sailings are still being halted due to the resurgence in COVID-19 cases.

Looking ahead, Carnival warned that the cruise operator expects to report losses in the first quarter and fiscal 2021 as well.

Coming back to the fourth-quarter, the company estimated that it will report a monthly average cash burn rate of $500 million. For the first quarter of FY21, Carnival expects to burn cash at a monthly average average rate of $600 million.

Meanwhile, Carnival’s advanced bookings for the first half of 2022 are already ahead of the bookings recorded in 2019.

Notably, the company has taken significant efforts to preserve cash and increase its liquidity in a zero-revenue scenario. Carnival has raised $19 billion since March and ended fiscal 2020 with $9.5 billion in cash and liquidity to get through 2021. (See CCL stock analysis on TipRanks)

In addition, Carnival has accelerated the pace of removal of less efficient ships from its fleet. About 15 out of 19 ships have already been removed from the fleet, the company said.

On Jan. 11, Deutsche Bank analyst Chris Woronka raised the stock’s price target to $16 (20.6% downside potential) from $13 and maintained a Hold rating.

The analyst said, “There remains essentially no visibility into when CCL (and peers) might begin sailing out of U.S. ports again, and it also remains unclear how the pending change in administrations and any potentially related changes in CDC [Centers for Disease Control and Prevention] personnel might impact things.”

However, Woronka sees “pent up demand, yield accretion from supply rationalization, and lasting margin expansion.”

He added, “While we don’t discount the possibility of shares continuing to trade more on optimism and momentum than on fundamentals or within historical valuation parameters, we are wary that certain blocs of CCL investors may eventually become frustrated with the timing of a return to normalized free cash flow generation.”

The rest of the Street is in line with Deutsche Bank’s outlook. The Hold analyst consensus shows 6 Holds, 2 Buys, and 2 Sells. The average price target of $18.89 implies downside potential of 6.2%. Shares have tanked about 58.3% over the past year.