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Here's Why Investors Should Retain Carnival (CCL) Stock for Now

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Carnival Corporation & plc (CCL - Free Report) is benefiting from cruise resumption, impressive booking volumes for all future cruises and brand recognition. In the past year, the company’s shares have gained 43%, compared with the industry’s rally of 46.3%. However, coronavirus pandemic and high debt remain concerns. In the past 30 days, loss estimates of fiscal 2021 have widened to $5.7 per share from a loss of $5.48. Let’s delve deeper.

Key Catalysts

After coronavirus-led shutdown, the company has commenced operations in a phased manner. During the second-quarter 2021 conference call, Carnival announced the resumption of 42 ships across eight of its nine brands by this fiscal year end. On Jul 4, 2021, it began operations from PortMiami after nearly 16 months of halt. Cunard has announced more than 40 new voyages across its fleet in 2021 and 2022. Queen Victoria will return to sailing in April 2022. The company is also working on its plan to resume sailing from Australia and Asia.

Carnival announced that booking volumes and book position are very encouraging. During the second quarter, booking volumes for all future cruises increased 45% compared with the prior quarter. The company stated that cumulative advanced bookings for full year 2022 are ahead of a very robust 2019 as of May 31, 2021. These bookings were achieved by negligible advertising and marketing.

Total customer deposits as of May 31, 2021 amounted to $2.5 billion compared with $2.2 billion as of Feb 28, 2021. During the quarter, customer deposits on new bookings exceeded the impact of refunds. Pricing on its 2022 book positions is above pricing on bookings at the same time for 2019 sailings owing to bundled pricing strategy for a number of its brands. During third-quarter 2021, the company anticipates positive cash flow from the 27 ships, which will have guest cruise operations during the quarter.

Earlier, Carnival announced the addition of its new ship Enchanted Princess, to its global fleet of Princess Cruises. The 145,000-ton unit is the first ship to have been completed and delivered amid the coronavirus pandemic. Currently docked at Fincantieri Shipyard in Monfalcone, Italy, the 3,660-guest ship comprises luxury Sky suites, entertainment venues, pools and whirlpool hot tubs.

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The pandemic has been hurting the company’s operations and global bookings. It believes that the coronavirus crisis is likely to cause delay in ship deliveries as the shipyards have been impacted as well. The company refrained from providing earnings guidance for fiscal 2021 due to the pandemic. It expects phased resumption of cruise operations to have a material impact on all aspects of its business, including the company's liquidity, financial position and results of operations. Going forward, Carnival anticipates to report a net loss on both U.S. GAAP and adjusted basis for the third quarter and full year ending Nov 30, 2021.

Maintaining liquidity has become a herculean task during the pandemic. At the end of May 31, 2021, the company’s long-term debt stood at $26 billion, almost flat compared with first-quarter 2021. It ended second-quarter fiscal 2021 with cash and cash equivalent of $9.3 billion, compared with $11.5 billion at the end of Feb 28, 2021, which may not be enough to manage the high-debt level. Average monthly cash burn in the quarter was $500 million.

Zacks Rank & a Key Pick

Carnival — which shares space with Norwegian Cruise Line Holdings Ltd. (NCLH - Free Report) and Royal Caribbean Group (RCL - Free Report) in the Zacks Leisure and Recreation Services industry — carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked stock in the same space is Camping World Holdings, Inc. (CWH - Free Report) , which sports a Zacks Rank #1.

Camping World Holdings’ 2021 earnings are expected to surge 51.4%.