Is the worst over for carnival?

In theory, this should be the perfect time to buy the world’s largest cruise operator. It’s a fair bet that Carnival (NYSE: CCL)(NYSE: CUK) and her smaller peers will start sailing again this year. We are in the early stages of the vaccination process that should ideally end the pandemic that has essentially ended the cruise industry.

Prioritizing the elderly for access to COVID-19 vaccines makes this great news for an industry where retirees are a lucrative target audience during slack cruising season. Carnival of last week, Royal Caribbean (NYSE: RCL), and Norwegian Cruise Line Holdings (NYSE: NCLH) all postponed their return to sailing from April to May. We can finally get to the point where the goal posts are stuck in the cement. Is the worst over for the carnival? The stock is trading 72% below its all-time high three years ago, but there’s more to this story than what we think.

Rock the boat

Carnival has done a lot in the lull since closing the last of its income-generating crossings over 10 months ago. Carnival has streamlined its fleet by offloading its less efficient ships. Last week he announced that he was selling the Pacific Princess, one of his small boutique ships. Carnival has also reduced its overhead to the point where its monthly cash consumption rate is $ 530 million per month.

Carnival has increased its cash flow to stay afloat until next year if the disruption continues, but that decision to survive has come at a cost. The inflated number of shares and the increase in long-term debt have kept the enterprise value of the stock high even as its stock declines. Carnival closed fiscal 2019 at the end of November of that year with inventory of $ 45.08 and enterprise value of $ 41.7 billion. A lot has happened in the last 14 months, and the lion’s share of the news has been negative. However, despite starting the new trading week at less than half of its level at the end of fiscal 2019, the enterprise value is about the same, at $ 39.7 billion.

In other words, the market believes Carnival is worth about as much as it was before the pandemic, even though the individual investors who held the stock have lost more than half of their value since the end of the Fiscal year 2019. Returning to its recent highs do not realize that Carnival’s value as a business is already at pre-pandemic levels. They were just stuck with what is essentially a 2-for-1 stock split without receiving any additional shares.

The worst is apparently over in terms of fundamentals. Revenue growth will turn positive once Carnival resumes as we will have already passed the disruption of mid-March of last year. Analysts see Carnival losing half the money – per share – this year than in 2020, but there are plenty of variables built into that consensus forecast.

The future is bright. We can even say that carnival will be even better in the future. There will be fewer ships, and berths that pent-up demand does not claim are likely already mentioned with bookings already made by customers applying credits from canceled cruises on future sailings. As the biggest player in the industry, Carnival is also well-suited to weather the inevitable shake-up.

The bullish argument in favor of the title’s rebound is more nuanced. Carnival is not a valuable title just because it has fallen sharply over the past year. It has much of the same enterprise value as it did a year ago, even though it costs less than half the price. Carnival’s fundamentals will start to improve in a few months, but more than that is going to have to be done for Carnival’s stock to accompany the round.