3Q 2021 Update to My Carnival Corp Stock Thesis
18 October 2021
In June 2021, I wrote that I think Carnival Corp stock is likely going to sail higher in 2021.
Here is the link to that article.
It took a few months but I think the story is starting to change for the better for Carnival Corp and all the other leisure travel stocks that are banking on a turnaround.
As an overview, here are Carnival’s 3Q 2021 updates at a glance:
- U.S. GAAP net loss of $2.8 billion and adjusted net loss of $2.0 billion for the third quarter of 2021.
- Third quarter 2021 ended with $7.8 billion of liquidity, which the company believes is sufficient to return to full cruise operations.
- Voyages for the third quarter of 2021 were cash flow positive and the company expects this to continue.
- As of August 31, 2021, eight of the company’s nine brands have resumed guest operations as part of its gradual return to service.
- Booking volumes for all future cruises during the third quarter of 2021 were higher than booking volumes during the first quarter of 2021, albeit not as robust as the second quarter of 2021, primarily as a result of lower booking volumes in August 2021, reflecting the impact on overall U.S. consumer confidence resulting from heightened uncertainty around the COVID-19 Delta variant.
- Cumulative advanced bookings for the second half of 2022 are ahead of a very strong 2019.
- Customer deposits increased $630 million in the third quarter of 2021, marking the second consecutive quarter since March 2020 the company has seen an increase in customer deposits.
- Through its debt management efforts, the company has reduced future annual interest expense by over $250 million per year and has completed cumulative debt principal payment extensions of approximately $4.0 billion, improving its future liquidity position.
- The company recently released its Sustainability Report detailing its 2030 sustainability goals and 2050 sustainability aspirations.
Here’s what I took away from it:
Not surprisingly, 3Q 2021 is a loss-making quarter for the company as they are not operating at their full capacity yet.
Carnival Corp’s liquidity is still strong at $7.8 billion as of the end of 3Q 2021, which will help them return to full cruise operations.
More importantly, pertaining to their business model strength – even during the pandemic – is that voyages in 3Q 2021 are already cash-flow positive – and management expects this to continue.
Eight of the company’s nine brands have resumed operations (but not all the ships) and this is great news, especially the fact that the pandemic is still happening and they are able to restart most of their brands already.
Yes, bookings in the near term are impacted by the Delta variant but cumulative advanced bookings for 2H 2022 are ahead of pre-pandemic 2019 times.
Carnival is continuously managing its debt to reduce future annual interest expense and this is important for them to potentially return to investment grade in the future.
Overall, my view is that the world is less likely to go back into a full lockdown and people are more used to COVID-19 as a more manageable virus in transition to becoming endemic. And this bodes well for leisure travel ramping up in the coming months due to pent-up demand.
Donald, the CEO of Carnival said it best when he said:
“Beyond the enthusiasm of our guests and crew and the unprecedented net promoter scores, it is difficult to demonstrate just how successful our restart effort has been because many cruises, while generating positive cash flow, were limited to scenic cruises without ports of call, and generally priced well below the attractive destination rich cruises we normally offer. Carnival Cruise Line resumed operations in July offering Caribbean and Alaska sailings somewhat comparable to prior years and achieved 20% higher revenue per PCD than 2019 peak levels, despite onboard credits from cancelled cruises. Even with the unusually short booking window and capacity limitations, the brand achieved occupancy of approximately 70%, which speaks to the strong underlying demand for our core product.”
I have been long in Carnival since 2Q of 2020, and right now my view is that Carnival might be starting to reach that inflection points where there is more certainty that people are getting more comfortable with COVID-19 and they are dying to travel – hence, the pent-up demand in my view is certain.
So the next three months will be key because there might be more positive updates on more drugs like Merck’s COVID-19 pill and other companies’ efforts to strengthen our hand further, against the COVID-19.
I am long most through Carnival Corp Call Options expiring on January 21st, 2022. So let’s see what will happen, my target is that it should go above 30 hopefully sooner rather than later.
Two near-term potential catalysts would be Royal Caribbean’s earnings end of October 2021 and Norwegian’s beginning of November 2021.
Carnival’s next earning is likely early January 2022.
The information provided is for educational and general information purposes only and is not intended to be personalized investment or financial advice. We make no promises as to the accuracy or usefulness of the information we present.
Important: Please read our full disclaimer.
I am/we are long CCL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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Chris Lee Susanto
Chris started investing in stocks early at age 21 and is a big proponent of business-like stock investing – a mixture of both value and growth investing. He invests in companies where there is value to be found (as long as it is still within his circle of competence), be it a turnaround, depressed, value, or quality growth company (compounders). He either buys the stock outright or he profits through selling put or selling call options – or buying call options (buying and selling options are especially dangerous for those who do not know how to properly execute it).
Some of the places where Chris has been invited to speak or have added value as a mentor or writer includes Singapore Polytechnic, SMU Institute of Innovation and Entrepreneurship (IIE), Dollars and Sense, The New Savvy, Value Walk Blog, Investment Moats, NUS Tembusu College, NUS Investment Society, CGS-CIMB Singapore, Singapore Financial Conference by NTU IIC, The Financial Coconut Podcast, Money FM 89.3 and Internationally in Myanmar.
He is also a practitioner of Transcendental Meditation and Mindfulness practice. He also advocates regular exercise, enough sleep, and nutritious food as part of our lifestyle as an investor.
As of the time of this writing, Chris is focusing on setting up his MAS Licensed Fund with the goal to beat the market over the long run.
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