After COVID-19 disruptions, the global cruising industry seems to be on a recovery path. It’s expected that the cruising industry will generate revenues of $6.6 billion in 2021. That’s almost twice as much revenue than it did in 2020.

Carnival Corporation (NYSE) (CCL) appears to be a stock of interest in the cruising market. The stock reached $31.52 by June but a correction was followed by concerns over the Delta variant COVID-19. (See CCL stock charts on TipRanks)

The stock has witnessed some consolidation around current levels at $23 per share. At current levels, I believe CCL stock is a good investment. The company will report its Q3 2021 results September 24th. It is well worth looking at.

While the company’s results will provide further insights on bookings for 2022, there are two important points to note.

Second, Carnival recently revealed that the U.S. fleet was back in operation at 50%. Carnival’s cash burn will decrease as ships continue to be deployed and more capacity utilization is achieved.

The data also suggests that U.S.COVID-19 case numbers have begun to decline from their previous high. It’s also worth noting that 55.5% of the U.S. population is fully vaccinated. If cases continue to dip, it will further accelerate the company’s booking momentum for 2022.

The company’s cumulative advance booking for 2022 was already ahead of 2019 levels, as of Q2 2021. Norwegian Cruise Line (NYSE 🙂 confirmed last month that there was strong demand for 2022 cruises. Potential stock upside catalyst is the strong growth of customer deposits during Q3.

Strong Cash Buffer

Cash burn has been a concern for all companies in the travel and tourism industry. Carnival Corporation reported that $2.6 billion was spent on cash operations in the first half 2021.

Important is the fact that Carnival finished Q2 2021 having $9.3 billion in cash and equivalents. This liquidity buffer should help the company avoid further dilution.

Carnival Corporation had total debt of $30.8 million as of Q2 2021. Carnival had interest costs of $835million for the first half 2021. Even with debt refinance to decrease the debt servicing burden the company still faces an annual interest outgo in excess of $1.5 billion.

It’s worth noting that in 2018 and 2019, Carnival reported annual operating cash flows of $5.5 billion. The company will be able to quickly pursue deleveraging once operations have returned to pre-pandemic levels.

It would however take several years to restore the company’s balance sheet to an investment-grade level.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, CCL stock comes in as a Hold, with four Buys, two Holds and four Sells assigned in the past three months.

CCL stock has an average price target of $27.91, which translates into 18.2% upside potential.

Bottom Line

Carnival Corporation stock seems attractive ahead of Q3 2021 results. Although cash burn will likely continue, bookings for 2022 are a significant catalyst to stock price appreciation. Cash burn will likely decrease as cruise ships become more operational.

Balance sheet repair is needed to mitigate risks. A further delay in industry recovery might lead to debt servicing.

There are many reasons to feel positive, despite the fact that there is a lot of travel demand, and also vaccinations.

Disclosure: Faisal Humayun had no position at the time this article was published.

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