There could be a huge advantage at Carnival (NYSE: CCL) after the Covid-19 pandemic if the company overcomes its current challenges and sees demand rise by 2021. The stock is currently trading at around $ 15 and has lost around 70% of its value since the start of the year, as the coronavirus pandemic has essentially brought cruise line activity to a standstill. Cruises from the United States have not sailed for about seven months, although most cruise lines plan to resume some level of operations from December. The stock traded at around $ 44 per share in February, as markets peaked before Covid, and is currently around 65% below that level. That said, the stock is up around 28% from lows seen in March 2020, driven by some progress in strengthening its liquidity and the multibillion-dollar stimulus package announced by the US government that has helped the market. fellow, in general, to recover. to a large extent. Our analysis of the company’s growth potential is based on our detailed analysis comparing Carnival’s stock market performance during the current crisis with that of the 2008 recession.
Coronavirus crisis 2020
- 12/12/2019: Coronavirus cases first reported in China
- 01/31/2020: WHO declares global health emergency.
- 02/19/2020: Signs of effective containment in China and hopes of monetary easing from major central banks help S&P 500 reach record high
- 03/23/2020: S&P 500 34% drop of the maximum level observed on February 19, as cases of Covid-19 accelerate outside China. It doesn’t help that oil prices collapse in mid-March amid a Saudi-led price war
- From 03/24/2020: S&P 500 recovers 55% since lows on March 23, when the Fed’s multibillion-dollar stimulus package removes short-term survival anxiety and puts liquidity into the system.
Timeline of the 2007-08 crisis
- 1/10/2007: Approximate pre-crisis peak of the S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated decline in the market corresponding to Lehman’s bankruptcy filing (09/15/08)
- 03/01/2009: Approximate low of the S&P 500 index
- 1/1/2010: Initial recovery to levels before the accelerated decline (around 9/1/2008)
Carnival vs S&P 500 Performance on the 2007-08 Financial Crisis
CCL stock fell from around $ 49 in October 2007 (the pre-crisis high) to around $ 20 in March 2009 (as the markets bottomed out), implying that the stock lost up to 60% of its value compared to its approximate value before the crisis. peak of crisis. This marked a higher drop than the larger S&P, which fell about 51%. However, the CCL recovered sharply after the 2008 crisis to reach around $ 32 at the end of 2009, up 62% between March 2009 and January 2010. In comparison, the S&P rebounded by around 48% over the same period. .
CCL fundamentals over the past few years looked good, but the current situation is very difficult
Carnival’s revenue has grown from around $ 16.4 billion in FY’16 (fiscal years end of November) to around $ 21 billion in FY’19, as demand for cruises increased. The company’s profits also rose sharply during the period, going from around $ 3.70 per share to around $ 4.30 per share. However, the situation changed dramatically in 2020. CCL reported a 99.5% year-over-year drop in revenue for the quarter ended Aug. 31, with a net loss of approximately $ 2.8 billion. dollars. Sales for the year FY’20 are expected to drop by more than 70% and it is very likely that it will take more than a year for revenues to return to pre-Covid levels, assuming there is no be no major change in consumer behavior. However, it is likely that customers will remain somewhat concerned about cruises for some time after the pandemic, given that the US CDC has indicated that cruise passengers are at increased risk of spreading infectious diseases from person to person. .
Does CCL have sufficient cash cushion to meet its obligations during the coronavirus crisis?
Carnival’s total debt has grown from around $ 9.5 billion in FY’16 to nearly $ 25 billion at the end of Q3 FY’20, while its total cash flow has grown from around $ 600 million to $ 8.2 billion over the same period, as the company raised funds to Tide. during the crisis. As the company’s operating cash flow increased from about $ 5.1 billion in 2016 to $ 5.5 billion in 2019, with operations now largely on hold, the company burned down. cash flow with estimated consumption of over $ 500 million per month in the fourth quarter. While Carnival’s cash cushion appears to be sufficient right now, if it doesn’t kick off by summer 2021, with occupancy levels rising, things could get tough. There are also significant long-term concerns, as the company’s debt increases, profitability will likely be a concern given the higher interest charge, even if demand recovers significantly.
Phases of the Covid-19 crisis:
- Beginning to mid-March 2020: Fear of the rapidly spreading coronavirus epidemic results in reality, the number of cases accelerating globally.
- End of March 2020 and beyond: social distancing measures + lockdowns
- April 2020: Nourished stimulation suppresses short-term survival anxiety
- May-June 2020: Resumption of demand, with the gradual lifting of lockouts – no more panic despite a steady increase in the number of cases
- July-October 2020: mediocre results in Q2 and lukewarm expectations in Q3, but continue improvement in demand and advances in vaccine development are strengthening market sentiment.
While Carnival’s shares rebounded strongly from the 2008 financial crisis, things might be different this time around, given the severe rate of cash consumption it is currently facing, uncertainty over how quickly the Demand will pick up after the pandemic and massive debt that is likely to limit long-term profitability. That said, if the pandemic subsides and demand begins to pick up, the stock could rebound significantly, although we believe it is unlikely to hit the levels over $ 40 seen in February anytime soon. .
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