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Why Carnival Stock Jumped 14% in December

By Demitri Kalogeropoulos – Updated Jan 6, 2022 at 4:05AM

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Investors are hoping for a cruise industry rebound in 2022.

What happened

Shareholders of Carnival (CCL -1.43%) beat the market last month, with the stock rising 14%, compared to a 4% spike in the S&P 500, according to data provided by S&P Global Market Intelligence. The rally wasn't enough to push the cruise line giant's returns into positive territory for the year, though. Shares declined 7% in 2021, compared to a 27% surge in the wider market.

Still, December's boost was sparked by cautious optimism that Carnival's business will see a solid recovery in 2022.

A cruise ship docked near an island.

Image source: Getty Images.

So what

The surging omicron variant is threatening that rebound as more consumers worry about the risk of contracting COVID-19 even following a full round of vaccinations. But there are indications that the omicron wave will be quick and perhaps less dangerous than previous variants of the virus. A receding pandemic would help Carnival take some major steps toward full-capacity cruises in 2022 and beyond.

The company also gave investors reason for cautious optimism in its latest earnings report. Sales grew to 58% of the pre-pandemic levels in the fourth quarter, the company said in an update in December. Crucially, Carnival returned to positive cash flow in November. "We have clearly maximized our return to service [in 2021]," CEO Arnold Donald said in a press release, "and strengthened our financial position ... on our path to profitability."

Now what

That path will surely be a volatile one, with the pandemic likely impacting short-term bookings. The cruise industry is highly sensitive to economic growth, too, and any wider slowdown would show up in pricing and passenger volumes.

The good news is that Carnival is expecting to have its entire fleet in operation by early 2022 as it seeks to push its current volume up from around 60% of pre-pandemic levels toward new records. That shift may require more than just the fiscal 2022 year, and so investors will need to be patient as the rebound strategy plays out.

However, with positive cash flow and plenty of cash on the books, Carnival is entering the new year with much better momentum than investors saw in 2021 or 2020. As a result, the stock could generate some attractive returns if the industry rebound speeds up.

Demitri Kalogeropoulos owns Carnival. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

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