One of the most affected travel markets this year is the cruise industry, and the best Carnival (NYSE: CCL) (NYSE: CUK) he is drinking water like all his smaller peers. The stock fell 68% in 2020, but a Wall Street professional warns that things may not improve any time soon.
Deutsche Bank’s Chris Woronka sticks to its hold rating and $ 13 price target, with Carnival’s share surge at the end of last week, after the company released a well-received financial update and overall increase. of market equities in recent weeks, holding steady at $ 13 is not a good thing. Carnival shares enter the new trading week 24% more than Woronka’s target. It has an interesting perspective on the situation that investors and speculators with long positions in the stock can consider.
Image source: Carnival Corp.
Ports of call
Carnival was able to talk about a good game late last week. She expects a couple of her ships under her AIDA brand to start leaving Germany next month. It is also taking a realistic approach when it comes to consumer demand. It is going to ditch 13 of its older ships and delay the delivery of new ships.
Deutsche Bank’s Woronka acknowledges that Carnival is taking significant steps to return to business, as well as to reduce its cash consumption to give its margins a chance for recovery. Woronka also notes that global headlines of potential COVID-19 vaccines and treatments are encouraging. The problem you see, for stocks, is that there is too much optimism in stocks based on what Carnival has had to do earlier this year to stay afloat.
Investors have applauded that Carnival has been able to raise more than $ 10 billion in financing since the pandemic closure of its travels in March, but there is no free lunch. There are higher debt payments and more shares printed in the construction of the Carnival lifeboat. By 2023, the closest year with the best opportunity to provide some degree of normality for the industry, Carnival will likely pay $ 850 million more than last year in interest payments. It is also likely an 11% increase in its outstanding shares. The dagger bulls need to be aware of here is that those two factors alone would reduce the $ 4.40 a share Carnival reported in 2019 earnings to $ 2.88 a share.
In short, even if things returned to normal in three years, we would be seeing a very diluted and leveraged financial position per share. Its $ 13 price target suggests that the stock is reasonably priced at 11 times earnings from 2023, discounted back to today’s opportunity.
Making a bullish argument for Carnival and the entire cruise line industry is generally based on pent-up demand and a return to the 2019 form. With pandemic uncertainty getting darker and the global recession intensifying, it’s a position that it is worth challenging. As Woronka’s math points out, Carnival cannot return to its 2019 level of operations any time soon.
