On Feb. 22, Carnival (CCL) stock rose 5.6 percent to $25.97. The stock surged after Royal Caribbean said that the long-term demand for cruises was strong. The stock has gained 20 percent year-to-date but has lost 31 percent over the last year. Is CCL stock a good buy at this price? What's the company's outlook, and what can investors expect?
Carnival stock was down 2.7 percent in after-hours trading on Feb. 22. The stock fell after the company said that it would issue $1 billion in new shares as its ships remain docked amid uncertainty due to the COVID-19 pandemic.
Why are cruise line stocks rising?
On Feb. 22, cruise stocks Carnival, Royal Caribbean, and Norwegian Cruise Line Holdings rose 5.6, 9.3, and 6.4 percent, respectively. The stocks rose after Royal Caribbean reported its fourth-quarter 2020 financial results and provided a business update.
In the fourth quarter, Royal Caribbean reported revenue of $34.1 million—a 98.6 percent reduction from $2.5 billion in the fourth quarter of 2019. The company missed Wall Street analysts’ average estimate of $52.1 million. The company’s adjusted EPS of -$5.02 beat analysts’ estimate of -$5.20 in the fourth quarter. However, the cruise company posted adjusted EPS of $1.42 in the fourth quarter of 2019.
Royal Caribbean CFO Jason Liberty said that bookings have continued to improve, and that reservations were around 30 percent higher in 2021 than in Nov. or Dec. 2020. This rise seems to have been driven by the roll-out of the vaccine.
What's the outlook for cruise line stocks?
The coronavirus pandemic shut down cruise lines nearly a year ago. However, the industry could pick up if the vaccines from Moderna and Pfizer are successful. In Jan. 2021, Truist Securities analyst Patrick Scholes said he didn't expect U.S. cruises to resume by the end of this year or early 2022.
Last month, Carnival CFO David Bernstein said, "We ended the year with $9.5 billion in cash and have the liquidity in place to sustain ourselves throughout 2021, even in a zero-revenue environment.”
CCL’s stock forecast
According to TipRanks, analysts' average target price for CCL is $19.69, which is 24.2 percent below its current stock price. Of the 13 analysts tracking CCL, three recommend "buy," six recommend "hold," and four recommend "sell." Their highest target price of $30 is 15.5 percent above the stock's current price, and their lowest target price of $14 is 46.1 percent below.
On Feb. 12, Berenberg Bank downgraded CCL stock to “sell” from “hold” but increased its target price to $14 from $10. According to The Fly, analyst Stuart Gordon pointed out that although the company’s enterprise value hadn't changed over the last 12 months despite its growing debt and its services being suspended due to the COVID-19 pandemic, he believed that was “unsustainable.”
RCL’s stock forecast
According to TipRanks, analysts' average target price for RCL is $67.75, which is 21.4 percent below its current stock price. Of the eight analysts tracking RCL, two recommend "buy," four recommend "hold," and two recommend "sell." Their highest target price of $91 is 5.5 percent above the stock's current price, and their lowest target price of $48 is 44.3 percent below.
On Feb. 12, Berenberg Bank downgraded RCL stock to “sell” from “hold” and maintained its target price of $55. According to The Fly, Stuart Gordon is “negatively disposed toward the leisure sector” amid the uncertainty due to the COVID-19 pandemic. He doesn’t expect the net yields to rebound to 2019 levels until 2024 or 2025.
RCL or CCL: Which is a better cruise line stock?
Carnival's NTM (next-12-month) EV-to-revenue multiple is 8.5x, which looks attractive compared with Royal Caribbean's and Norwegian Cruise's NTM EV-to-revenue multiples of 9.6x and 19.1x, respectively. In 2021, cruise companies will continue to see net losses. CCL is expected to report net losses of $3.81 per share on sales of $6.35 billion, while RCL is expected to report net losses of $13.53 per share on sales of $3.74 billion. All in all, CCL looks like a better stock.