What Happened
Carnival Corporation (CCL -0.66%) saw its stock price sink 19.8% in May, according to S&P Global Market Intelligence.
The cruise line trailed the S&P 500, which was up 0.2% in May, and the Nasdaq Composite, which dropped 1.9% last month. Carnival is down about 32% year to date, trading at around $13 per share.
Image source: Getty Images.
So what
Carnival Corporation, which runs Carnival Cruise Lines, was hit as hard by the pandemic as just about any company, along with others in the industry. But things have been looking up for Carnival. In the beginning of the month, Carnival announced that its full fleet of 23 ships are all back in service.
But Carnival's stock sank the following week after its competitor, Norwegian Cruise Line Holdings, announced a $1 billion net loss and lower-than-expected revenue in the first quarter, and indicated that the second quarter could be a net loss, too. This led to several analysts lowering their price targets, and it also impacted others in the cruise industry, including Carnival, which dropped 5% on the news. Carnival had reported Q1 earnings back in March, as its fiscal Q1 ended Feb. 28.
Carnival took another hit on May 18 after it announced that it was offering $1 billion of unsecured debt at an interest rate of 10.5%, which matures in 2030. The proceeds would be used to pay off debt and for general corporate purposes. On the news, analysts at Truist and Bank of America lowered their price targets for Carnival.
Now what
Debt is a major issue for Carnival and the other leading cruise lines as it had to borrow to stay afloat during the pandemic shutdowns. Carnival has amassed some $36 billion in debt, and some analysts are concerned that, even with cruise lines opening back up, there's not enough revenue coming in to keep up with the debt payments and turn a profit, given the state of the economy and COVID still being an issue.
"We think this debt issuance at these levels of liquidity shows the refi needs of the cruise industry in the face of rising interest rates plus concerns around a spike in COVID cases [cruise lines still test]," Bank of America Securities analyst Andrew Didora wrote, lowering Carnival's price target, as my colleague Eric Volkman reported.
So while the good news is that cruise season is here, Carnival has its full fleet back, and the worst appears to be behind it, there are still major challenges lurking for Carnival.
