Shares of cruise ship major Carnival (NYSE:CUK) Corporation (NYSE:CCL) hit their highest post-pandemic price last week in a sign that now’s as good a time as ever to get involved. In what will surely become one of the greatest recovery stories of all time, shares have now run up close to 300% in the past twelve months. It hasn’t been all plain sailing, however, and to paraphrase Butch Cassidy, for a moment there it looked like they were in trouble.
As the pandemic struck and travel stocks plummeted, the airlines could at least count on federal intervention and a massive safety net. Not so for cruise ships, however, as their policy of being registered at ports outside of the US to avoid taxes came under much scrutiny. But despite watching their shares fall 85% in a matter of weeks, they hung on, and once it became clear they had the funds to get through the darkest days of the pandemic, Wall Street’s thoughts quickly turned to where the stock might be after the pandemic.
The triple-digit percentage run seen in the stock since then is one answer to that question. As the global vaccine rollout continues to gather pace, there’s a good argument to be made for getting involved in Carnival stock even after the recent run.
Quarterly Numbers
Despite a year-on-year drop in revenue to the tune of 99.5% in the company’s Q1 numbers released last week, there are fundamental factors in play that should allow for that print to be very much a once off. In the days before those numbers were released, the CDC announced plans to allow cruise operations to re-start from mid-summer on and the State of Florida has gone so far as to sue the CDC to allow for faster restart. That quarterly earnings report with the jaw-dropping contraction in revenue also had a 90% quarter-on-quarter increase in bookings which is an indication of the level of pent-up demand just waiting to be released.
A 20% dip in Carnival shares towards the end of March was quickly called out as being overdone by Stifel, who are bullish on things returning to normal sooner than expected, while at the start of April, Citi initiated coverage on Carnival shares with a Buy rating. They echoed Stifel’s sentiments when they said “we expect strong pent-up demand to be supportive to vacation booking trends. With vaccine roll out underway, mandatory testing regimes being put in place, and onboard health care facilities we think the cruise lines are well placed to capitalize on this demand."
Fresh Upgrades
Then late last week, Credit Suisse added to the bull case when they upped their rating on shares from Neutral to Outperform and gave the stock a fresh price target of $40. From Friday’s closing price suggests upside of some 35% which is a good return in anybody’s book. Analyst Benjamin Chaiken summed up his team’s feelings, saying "we think the conversation is changing away from ‘survival’ and more towards potential earnings catalysts." They think the company will be back to profitability by 2022 with shares also returning to pre-pandemic levels in the meantime too.
Considering they’re more than a 60% move away from those prices, even with the recent run, it’s hard not to want to buy into the cruise ship recovery story right now. They’ve come through what was probably the greatest Black Swan event of their industry’s history and even though shares are still hurting from the drop, they’re in full-on recovery mode and look like they’ll continue to be for some time yet.