Free Republic
Browse · Search
General/Chat
Topics · Post Article

Skip to comments.

Why Carnival Stock Popped on Tuesday
The Motley Fool ^ | Aug 23, 2022 at 10:51AM | By Rich Smith -

Posted on 08/23/2022 10:59:09 AM PDT by Capt. Tom

Carnival Corporation succeeded in rolling over some short-term debt this week -- at "no upfront cost." That's good news for Carnival, reducing the short-term risk of bankruptcy.

What is the risk that Carnival's debt load will prevent it from earning a profit? On a modestly green day for the stock market, with the S&P 500 just dipping its toe into positive territory as of 10 a.m. ET, shares of cruise stock company Carnival Corporation (CCL 2.34%) (CUK 1.89%) are doing better than most, up 2.8%.

Carnival announced last night that it has closed a previously announced debt exchange, and this appears to be what investors are cheering.

So what It's hardly groundbreaking news, but it is good news. For "no upfront cost," Carnival has successfully exchanged $339 million worth of convertible senior notes due in early 2023, on which it was paying 5.75% interest, for $339 million in other convertible senior notes that pay the exact same interest rate.

The difference being: The new debt doesn't have to be paid off until October 2024, giving Carnival 18 months of extra breathing room on its debt.

Now what But here's what isn't different about Carnival today: While Carnival's debt due date extension reduces the chance the company will at some point have to declare insolvency, Carnival's debt load remains frighteningly large -- because while the debt rollover didn't raise the company's debt, it didn't reduce it, either.

Total debt at Carnival stands at $36.4 billion, with only $7.2 billion in cash offsetting it. Last year, servicing this debt cost Carnival $1.6 billion, and while Carnival managed to avoid paying a higher interest rate on this week's debt rollover, interest rates are still going up -- and there's no guarantee that the next time Carnival tries to roll over old debt, lenders won't demand a higher interest rate.

The good news is that, pre-tax and pre-interest, Wall Street analysts still expect Carnival to earn $2.6 billion next year ($1 billion more than its current interest costs), so there's still a chance Carnival will earn a profit in 2023 -- if the Fed doesn't hike interest rates too much. In that regard, you're going to want to tune back in on Sept. 13, when the Bureau of Labor Statistics releases its next readout on how high inflation has gotten -- and, subsequently, when the Federal Reserve decides how much it will hike interest rates to address it.


TOPICS: Business/Economy; Travel
KEYWORDS: carnival; debt
To me an important date would be in October when the third quarter Carnival cruise line economics have to be explained. Time will tell. -Tom
1 posted on 08/23/2022 10:59:09 AM PDT by Capt. Tom
[ Post Reply | Private Reply | View Replies]

To: Capt. Tom
"no upfront cost."

I think the term of art for that in the financial community is "kicking the can down the road".

2 posted on 08/23/2022 11:06:43 AM PDT by PAR35
[ Post Reply | Private Reply | To 1 | View Replies]

To: Capt. Tom

Popped? It’s up 24 cents right now...popped?


3 posted on 08/23/2022 11:16:00 AM PDT by G. W. McLintock
[ Post Reply | Private Reply | To 1 | View Replies]

To: Capt. Tom

It’s rarely about past performance, but typically more about future guidance that impacts stock prices.


4 posted on 08/23/2022 11:16:48 AM PDT by for-q-clinton (Cancel Culture IS fascism...Let's start calling it that!)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Capt. Tom

The Biden Admin will house Illegals onboard ?


5 posted on 08/23/2022 12:07:51 PM PDT by butlerweave
[ Post Reply | Private Reply | To 1 | View Replies]

To: G. W. McLintock

Currently at $9.54 I bought it at $18 two years ago. $500 got me 27 shares. :)


6 posted on 08/23/2022 12:56:44 PM PDT by JohnnyP (Thinking is hard work (I stole that from Rush).)
[ Post Reply | Private Reply | To 3 | View Replies]

To: PAR35
I think the term of art for that in the financial community is "kicking the can down the road".

The big 3 cruise lines are experts at that, since they have done it for two years now, and are going into 2023 and 2024 now, unless their creditors put a stop to it. - Tom

7 posted on 08/23/2022 1:48:01 PM PDT by Capt. Tom (.It's COVID 2022 - The Events, not us, are still in charge. )
[ Post Reply | Private Reply | To 2 | View Replies]

To: G. W. McLintock; Capt. Tom

Carnival stock up another 2.7% today.
That makes it up 5% in two days.
That is called bottom fishing.


8 posted on 09/07/2022 10:47:13 AM PDT by entropy12 (Trump & MAGA are the only road to kep USA viable.s)
[ Post Reply | Private Reply | To 3 | View Replies]

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
General/Chat
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson