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Carnival shares break below their pandemic low: buy the dip?

By:
on Sep 30, 2022
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  • Carnival reports another disappointing quarter and lowers guidance.
  • Charles Schwab's Lee Bohl's shares his outlook on Carnival shares.
  • The stock is now down nearly 70% versus the start of the year 2022.

Carnival Corp (NYSE: CCL) dropped below its pandemic low on Friday after reporting yet another disappointing quarter. The cruise company also issued weak guidance for the future.

Should you buy Carnival shares on weakness?

Bookings were encouraging this quarter as COVID restrictions eased but higher costs (labour, food, and fuel) and lower fares weighed on results.

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Such headwinds also made Carnival lower its guidance to “break even” or slightly negative adjusted EBITDA in Q4. Reacting to the report on TD Ameritrade Network, Lee Bohl (Charles Shwab) said:

Carnival has debt coming due. $2.4 billion in 2023 and more in 2024. So, the question is, was the equity raise they did in July because they couldn’t get any more debt financing. I think they have an issue if they have to roll this debt over at much higher interest rates.

The Miami-headquartered company expects a price surge in 2023. By the end of Q4, it said eight of its nine brands will be serving passengers at full capacity. Still, Bohl added:

Carnival just took out the lows of its COVID bottom in 2020. So, from a measured move perspective, there’s another $3.0 worth of downside on this.

For the year, Carnival shares are now down close to 70%.

Carnival Corp Q3 financial highlights

  • Lost $770 million versus the year-ago $2.84 billion
  • Per-share loss contracted from $2.50 to 65 cents
  • Revenue shot up roughly eight-fold to $4.31 billion
  • Consensus was 11 cents loss on $4.90 billion revenue

Passenger ticket revenue and onboard and other revenue also climbed sharply (nine-fold and seven-fold respectively) but were still well below the Street expectations. The earnings press release reads:

Cumulative advance bookings for the fourth quarter of 2022 are below the historical range and at lower prices, primarily due to future cruise credits (FCCs) as compared to 2019 sailings.

Available lower berth days (ALBD) represented 92% of the total fleet capacity versus 17% only a year ago. This metric, however, missed estimates as well.

Earlier this year, Morgan Stanley warned Carnival shares could be worth “zero dollar” in the worst-case scenario. (read more)