Carnival (NYSE:CCL), which owns nine cruise lines — including Princess, Costa, and Holland America — opens for trade March 31 with a market cap of about $9.1 billion, and a dividend fetching a yield of 15.6%. Don’t go near it.
Cruise lines aren’t going to be bailed out by the U.S. government. Their ships are registered under flags of convenience like Liberia and Bermuda. Carnival is based in Panama. This means it can’t access the $500 billion in business aid signed over the weekend.
Without a bailout or recapitalization, it’s impossible to see Carnival surviving. It has huge exposure to what has already happened and had just $500 million in cash at the end of November. The question should not be why is this stock down 71%. It’s why is this stock not trading at zero?
Can Mickey Arison Save Carnival?
Executive chairman Mickey Arison, whose father founded Carnival and also owns the Miami Heat basketball team, is listed as having a $5.6 billion fortune by Forbes. Even after selling 10 million Carnival shares in the middle of the decade, his family and related entities still held 24%.
If anyone is going to save Carnival, it’s Arison.
While Carnival is ineligible for a bailout, Arison has offered to use ships as “floating hospitals” Carnival did this after hurricanes in 2005 and 2017. Arison is reportedly close to President Trump.
In its most recent year, Carnival netted about $3 billion on revenue of about $20 billion. There is certainly an asset here worth saving. The ships could be mothballed, disinfected, and maintained as ready to sail after the crisis has passed.
But that would not save owners of common stock. Carnival spent over $2 billion on dividends and stock buybacks, much of it financed with new debt, over the last year. It also had a $5.5 billion capital budget, mostly on new ships. On March 17 Carnival said it would tap most of its $3 billion in remaining credit to bolster its cash position. The company had nearly $10 billion in debt as of November.
If Arison lets the stock continue to fall, to near zero, he may be able to take the company private, using debt to get it through the crisis. He could, in theory, sell the Miami Heat basketball team to finance a bid. But common stockholders look certain to be written off.
Stay Away
What’s left of the Carnival story is a game for billionaires, not small investors.
InvestorPlace contributor Tom Taulli writes that there is not enough clarity to make a good investment in Carnival right now.
I think there is plenty of clarity. A Wells Fargo (NYSE:WFC) analyst wrote just a week ago that once Carnival goes through the current credit line, it would still need to raise capital. Carnival management has suggested $7 billion will be needed. CEO Arnold Donald has suggested that a loan guarantee could get the company through.
But where would such a guarantee come from?
The Bottom Line on CCL Stock
Carnival currently has a halt on operations, with an announcement expected on March 30. Given yet-another series of cruise deaths, on the Holland America Zaandam, the hold is likely to be extended by at least a month.
Carnival has 150,000 employees who must be paid. It says it has a 90-day plan to get through the crisis. It insists it will be back. But what form that will take is unclear.
My guess is Arison will do a deal with private equity, diluting his own stake. There’s still a lot of cash floating around, especially with the bailout freeing trillions more.
I just don’t think public company investors, either current or prospective, are in those plans.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in WFC.