Stock Market

If You Own Carnival, Don’t Fret Over Cruise Repositioning News

  • Norwegian Cruise Lines (NCLH) is repositioning seven months of Asia cruises, but owners of Carnival (CCL) shouldn’t be worried.
  • Asia remains a growth area in the cruise industry.
  •  CCL stock still provides an excellent risk/reward profile and opportunity.
Source: Ruth Peterkin / Shutterstock.com

As if cruise stocks needed another problem, Norwegian Cruise Lines (NYSE:NCLH) announced on May 23 that it will reposition its cruises in Asia to Europe from Oct. 11 through April 25, 2023. Carnival (NYSE:CCL) and Royal Caribbean (NYSE:RCL), were collateral damage. 

As InvestorPlace’s Chris MacDonald reported, all three stocks were hammered on the news. As I write this, CCL stock price is slightly above $12, recovering a little more than half its losses on the information. 

Carnival and the rest of the cruise line operators don’t need any more bad news. However, if you look more closely at Carnival’s business, you’ll see that this is much ado about nothing.

CCL Carnival $13.20

CCL Stock Can’t Drop Much Further

As I recently wrote, Carnival’s business is returning to historical norms. This means full capacity on its ships and plenty of revenue. For now, however, profits have yet to materialize. This will happen in time.

In the meantime, Norwegian’s decision to reposition its Asian fleet to Europe — while completely understandable given travel uncertainties due to Covid-19 — hasn’t helped Carnival’s share price. CCL stock is down 38% year-to-date, 55% over the past year and 79% over the past five years.

The truth is, CCL stock has only traded at around $12 on two occasions since 2000: April 2020 and May 2021. Both price levels were related to Covid-19. It might take another year, but its share price likely won’t go much lower unless a recession appears, which is a distinct possibility. 

Carnival’s Asia Business

To understand how a similar repositioning by Carnival would hurt its Asian business, I’ve gone back to its 2019 10-K to understand what Asia means to the company.

In 2019, Asia, Australia and New Zealand accounted for 2.03 million passengers out of nearly 12.9 million. That’s 15.8% of its total passengers. In 2018, it was 17.4%, and in 2017, it was 19%. So over those three years, the region became much less of a factor in its overall success — at least, from a passenger standpoint. 

On page seven of its 10-K, Carnival states, “We also believe Asia is a large addressable market, where economic growth has raised discretionary income levels, fueling an increasing demand for travel.”

Carnival may focus more on selling Chinese travelers on its cruises elsewhere rather than within Asia. Airbnb (NASDAQ:ABNB) just announced it was shutting down its operations in China to do precisely that. 

The news from Norwegian, while interesting, has minimal effect on Carnival’s overall business. I suspect it won’t affect Norwegian’s too much, either. 

CCL Stock Remains an Excellent Proposition

In my recent commentary, I said, “Carnival’s current share price ought to be enticing to aggressive investors.” The selloff from Norwegian’s news doesn’t change my sentiment. 

The company tends to make gobs of money above $10 billion in annual revenue. In the first quarter, its revenue was $1.6 billion. Annualized, that’s $6.4 billion. Assuming total deposits keep growing — it saw $3.7 billion at the end of February compared to $3.5 billion in November — $10 billion could be reached in no time.

Of course, Covid-19 can’t get any worse in its prime markets such as the U.S., the Caribbean and Europe, or all bets are off. Otherwise, CCL stock remains attractive for aggressive investors.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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