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Stone Fox Capital Advisors is a registered investment advisor founded in 2010. The firm offers portfolio management with a focus on opportunistic stocks providing secular growth trends at an affordable value. An emphasis is placed on fundamental analysis though charts are used for timing entry and exit points. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA. Invest with Stone Fox Capital's model Net Payout Yields portfolio on IB Asset Management as he makes real time trades. The site allows followers to duplicate the model portfolio in their own brokerage accounts. You can find the portfolio and more details here: http://ibkram.com/stone-fox-capital Follow Mark on twitter: @stonefoxcapital

Carnival (CCL) Is Still a Very Risky Cruise Line Stock


The biggest worry surrounding Carnival Corporation (CCL) and the cruise lines in general is the struggle to restart cruises. The longer their ships sit docked, the harder the companies are going to have restarting operations and retaining employees.

The sector came out a couple of weeks ago and extended the suspension of operations out of U.S. ports voluntarily until September 15. The cruise line sector now faces a delay extended by 45 days and mounting fears of the ability of Carnival to start generating revenues again.

Disruptive Delay

The Center for Disease Control and Prevention had previously extended a no-sail order for cruise ships until July 24. Carnival had expected the government organization to eventually allow the company to restart operations with cruises scheduled for August 1 departures.

As the COVID-19 virus continues to spread in states like Florida and Texas, the Cruise Lines International Association agreed to voluntarily suspend all operations until September 15. The major cruise lines of Carnival, Royal Caribbean (RCL) and Norwegian Cruise Line Holdings (NCLH) are part of the organization agreeing to the extended suspension as the CDC might still have unsatisfied questions regarding passenger safety.

Carnival has decided to extend their delay until September 30 and now has to contact customers willing to book these initial return cruises and notify them of the bad news. One has to wonder how many customers will be willing to re-book on October 1 until more certainty exists. The company already had a limited amount of ships set to sail on August 1.

Burning Cash

The cruise line already faces a tough cash burn situation with the zero-revenue environment. Now, the company is delayed another 60 days from generating revenues and the push back of the restart has to hurt bookings as customers become concerned about an eventual restart.

Carnival Cruise was already burning some $650 million per month. This delay adds another $1.3 billion in losses from cash burn alone and harms the ability to restart in October.

The airline stocks were always more attractive for this reason. Air passenger traffic is already back to over 27% of 2019 levels and the airlines have spent the last three months learning how to cope with passengers in the COVID-19 world.

The cruise lines are doing the opposite with these additional delays as potential customers have to feel safety is a bigger issue on cruise ships. The best news for this sector is the push forward to work with a joint task force to develop safety standards allowing for a restart of crusies.

Carnival Cruise raised $6.6 billion back in April, but the cruise line will now need to burn a large portion of that cash before even getting back to business. The cruise line had ~$7.6 billion of liquidity on May 31, or the end of FQ2. The company will burn nearly $2.6 billion before restarting operations on October 1. Without full operations, the company will continue to burn cash indefinitely for the rest of 2020 and into 2021.

Wall Street Consensus

The troubled biotech giant certainly has the Street divided, as TipRanks analytics indicate CCL as a Hold. Based on 20 analysts polled in the last 3 months, 4 rate CCL a Buy, 12 say Hold, while 4 recommend Sell. The 12-month average price target stands at $16.51, which marks about 10% upside from current levels. (See CCL stock analysis on TipRanks)

Takeaway

The key investor takeaway is that Carnival remains a very risky stock with the cruise lines struggling to get back to sailing. At $15, the stock has nearly doubled off the early April lows, but the company is hardly in any better position here.

Investors should avoid the stock until more clarity exists on the restart of operations.

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