Carnival Cruise Line tries to stay afloat during market sell-off

Cruise companies are enduring the darkest of times during the Covid-19 sell off, but that doesn't mean they won't recover.

Since the market sell off has begun the tourism sector has felt unprecedented losses. Carnival (CCL) is in the eye of the hurricane and trying stay afloat. Cruise lines, especially Carnival, are a major hit among vacationers that want an affordable trip with a lot of amenities. Shares of the cruise line were trading at $8.22 as of 10:40 a.m. on April 2. That's an 85% drop a share from its 52-week high of $57.33. Carnival's stock may be in shambles now, but that could mean exponential growth for investors and financial movers that want to buy while shares are discounted.

Can Carnival weather the storm?

Shares in the company have been hit especially hard because of the company's decision to cancel all cruises until mid-April. Of course, mid-April is the target area to re-open, but nobody is certain that'll happen.

Carnival has given notice to borrow $3 billion to endure the storm and smooth over company operations.

"The Corporation borrowed under the Facility Agreement in order to increase its cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 outbreak," Carnival said. "The proceeds from the Facility Agreement borrowings will be available to be used for working capital, general corporate or other purposes." 

2019 financials from the company showed that they closed 2019 with nearly $2 billion in cash or equivalents on hand and another $1 billion in other assets. If the company can secure the $3 billion lending that they're seeking and find ways to keep cutting costs, then they'll be able to stay afloat until cruises begin to operate.

"People are still booking cruises, they're booking them farther out of course. Late 2020 and early 2021," said Tommy Allison from The Cruise Dudes Podcast in an interview with Financial Movers.

Allison went on to point out that cruise lines such as Princess Cruise Lines (owned by CCL) serves roughly 50,000 guests a day. To cut that number to zero has a huge impact on the company but, "there's a lot of loyalty to these brands. I think a lot of people don't take that into consideration. People don't just pick a cruise line because its a vacation somewhere. They pick a cruise line because they like the way they're treated, and how they're entertained, and the value they get out of it," said Allison.

Buying Carnival stock

CCL weekly chart decrease from 2008 recession. Source: TradingView

Charts from CCL performance during the 2008 recession show CCL shares dropped 67% from December 2007-October 2008, where they eventually bottomed out $14.85. By October 2009, one year later, CCL shares increased 125% to $33.50.

Carnival is the world's largest cruise ship operator. They provide vacation experiences to millions of people a year with over 100 ships that can carry more than 250,000 guests. In 2019 the company's net income was $3 billion, or $4.32 earnings per share.

Cruises provide one of the most unique vacations in the tourism industry. Island hopping, fine dining, bottomless mojitos, and breakfast in bed are only a few of the luxuries cruise lines can provide. Carnival has been around since 1972 and has prevailed over every economic downturn since then. Their track record is strong and their financials are stronger. Any portfolio that adds CCL should expect smooth sailing to big gains.

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DISCLAIMER: This site article does not contain financial advice. Any and all market analysis is solely the authors opinion.