What happened
Shares of Carnival (CCL 7.78%) (CUK 7.53%) were up 2.69% as of 10:22 a.m. EDT on Tuesday after the company said it plans to resume guest cruise operations across eight of its cruise line brands by the end of 2021. This would bring Carnival's total operating capacity to nearly 75% by the end of 2021.
So what
A total of 54 ships across AIDA Cruises, Carnival Cruise Line, Costa Cruises, Cunard, Holland America Line, Princess Cruises, P&O Cruises, and Seabourn plan to resume operations by the end of 2021. Carnival Cruise Line plans to return its full fleet to service this year, which would bring a total of 63 ships back to operations in 2021.
Carnival stock has rebounded 32% over the last year but tumbled in June as it ran into some hurdles with the state of Florida's pushback over COVID-19 vaccine mandates, which Carnival views as important to making passengers feel safe on board. Cruise stocks have come under more selling pressure in July over a recent spike in COVID-19 cases.
Nonetheless, the updated roadmap on returning to normal operations gives investors some near-term visibility on Carnival's recovery. There seems to be tremendous pent-up demand for people to travel again. Carnival announced in early July that a 40-night winter sun Caribbean cruise on P&O Cruises sold out in the first day.
Image source: Getty Images.
Now what
Carnival reported a loss of $10.2 billion in 2020 over pandemic travel restrictions, which has forced the company to issue debt to survive. There is a ticking clock working against Carnival, and it's not out of trouble.
The recent increases in COVID-19 cases could pose a severe threat and no one really knows what will happen if cases continue to climb. But if Carnival can maintain its current guidance for resuming cruise operations, the potential upside may justify the risk.
At the current share price of $20.36, Carnival shares are trading at 4.7 times 2019 earnings per share.
