The Carnival (LSE: CCL) share price has jumped in value this year. Shares in the business have risen 34% year-to-date. Unfortunately, even after this gain, the stock remains below its pre-pandemic level. At this point two years ago, the stock was selling at around 4,000p. That’s 135% above current levels.
However, as the world starts to move on from the pandemic, the outlook for the Carnival share price is improving. As such, I reckon further gains could be on the cards.
Carnival share price outlook
It seems to me that investors have been buying shares in the cruise line operator as a sort of recovery play. The global coronavirus vaccine programme is starting to have an effect, leading to improved confidence in the travel and tourism sector.
Indeed, earlier this week, the US Centers for Disease Control (CDC) and Prevention issued new guidance for Americans wanting to travel after receiving Covid-19 vaccines.
This is the first substantial guidance issued by the health agency since the end of last year. It has loosened testing and quarantine restrictions and prepared the groundwork for cruise lines to start operating test voyages. At least one cruise operator, Norwegian, jumped at the chance to resume cruises. I think it’s likely Carnival will follow suit.
As the company’s largest market, the change in guidance from the CDC is significant. Previously, cruise groups were restricted by a No Sail Order, which prevented cruises entirely. This was modified in November of last year, but firms have lacked guidance for restarting voyages, leaving managements in the dark.
Therefore, the recent CDC update is a big step forward for the industry.
Sailing into the sunset
Following the recent change in guidance from the CDC, I think the outlook for the Carnival share price has improved significantly.
The group can start planning a resumption of cruises and taking bookings without having to worry about refunding deposits at a later date. On that basis, I think the Carnival share price can keep climbing, and I would buy the stock for my portfolio today as a recovery play.
That said, the business continues to face significant risks. There’s no guarantee the CDC won’t change its mind if Covid-19 infection rates rise significantly. If it does, Carnival and its peers could go back to square one.
At the same time, there’s no guarantee customers will return in large numbers when cruises resume. It could be years before the company can return to 2019 levels of profitability. Then there’s Carnival’s debt to consider. The group has generated absolutely no income over the past 12 months. To keep the lights on, management has had to borrow billions. Paying creditors back won’t be easy.
Still, despite these risks and challenges, it seems to me that the firm has now passed through the eye of the storm. That’s why I believe the Carnival share price can continue to increase in value.
