Why I’ve turned positive on the Carnival share price

Over the past year, I’ve been cautiously optimistic about the outlook for the Carnival (LSE: CCL) share price. I always thought the cruise giant would make it through the coronavirus pandemic. But I didn’t know what state the business would be in when it finally was allowed to restart its engines. 

It’s now clear the worst is behind the business. While management has decided operations in the company’s largest market, the United States, will remain suspended until the end of June at the earliest, its P&O Cruises UK brand will have two ships operating from Southampton starting in June. 

Revenues return 

This isn’t much in the grand scheme of things. However, it’ll bring some much-needed cash into Carnival’s bank accounts.

To illustrate the scale of the company’s slowdown over the past 12 months, we only need to look at its figures for the three months to the end of August 2020. During that period, Carnival’s total passenger ticket revenues were $0. Passenger ticket revenues totalled $4.5bn in the prior-year period.

The group would only need to sell one passenger ticket on its P&O Cruises during the three months to the end of August to beat its performance in the same period last year. 

So, revenues are returning. The group also has a much stronger balance sheet than it did this time last year. 

Carnival share price survival

When the pandemic began to roll around the world, some investors and analysts questioned if Carnival would survive. It nearly didn’t. In March 2020, Carnival suddenly needed to find $6bn.

As global financial markets panicked at the scale of the pandemic, few investors were willing to offer such a substantial credit line to the struggling enterprise. 

Luckily, the US Federal Reserve stepped in to provide liquidity. Thanks to these actions, Carnival has raised nearly $24bn over the past 12 months. In addition, a recent fundraising means the group has enough cash to last for another year of total shutdown. Hopefully, this won’t be required. 

Clearly, the company still faces some significant risks. The pandemic isn’t over yet. It could persist for some time. The UK cruises can only sail with fully vaccinated adults, and they won’t stop on route. And as Asia struggles to get to grips with another wave of the virus, it seems unlikely the global cruise industry won’t be able to return to 2019 levels of activity until 2022, at the earliest. 

Recovery play 

Therefore, I think it’s unlikely the Carnival share price will return to previous highs anytime soon. However, as a recovery play, I’d buy the stock.

Its well-funded balance sheet should provide enough capital to move forward over the next few quarters. What’s more, initial indications suggest that demand for cruises, when they resume, will be high. 

Overall, Carnival is heading in the right direction. The stock may not be suitable for all investors, but considering its potential, I’d add it to my portfolio.