On Wednesday we got a window into the current state of cruise line operator Carnival Corp. (CCL) , which reported first-quarter results. Revenue for the quarter fell 99.5% to $26 million from $4.79 billion in the first quarter of 2020, and Carnival lost $1.97 billion, or $1.80 a share, versus a loss of $781 million, or $1.14 per share, in last year's first quarter. No big surprises here; Carnival and the industry have been all but shut down for more than a year.
While a return to more normal operations is getting closer, Carnival recently announced it has cancelled all cruises until at least July 1. The date has been pushed into the future several times, but it does appear the light at the end of the tunnel is near. With more people getting vaccinated, it is plausible cruises will restart later this year.
Markets certainly believe that's the case; Carnival shares are up 23% since my February column, which questioned the stock's valuation in light of an ever-changing capital structure. With the release of first-quarter results, we get a new picture of that capital structure. As of quarter end, Carnival had $11.5 billion in cash and $31.3 billion in debt. Shares outstanding stood at 1.158 billion, up from 687 million this time last year, which represents massive dilution. With a current market cap of $32 billion, that puts the enterprise value, or EV -- market cap plus debt minus cash -- at $51.8 billion.
If we go back to November 2019, a simpler, pre-pandemic time, Carnival's EV was about $42 billion. Shares at that time were trading in the $45 range, and that year the company earned $4.32 a share. To get to an equivalent EV with the current level of debt and shares outstanding would imply a share price of just above $19 a share.
Carnival closed at $28.56 on Thursday. In my view the irrational exuberance continues and Carnival shares are priced for perfection. Current consensus estimates suggest earnings per share of 14 cents next year and $1.66 for 2023. That would put the two-year forward price-to-earnings (P/E) ratio at just above 17. Now, that may not seem like a ridiculous multiple for CCL. However, there is still far too much uncertainty here, and again that's a consensus for 2023.
I could continue to be wrong about Carnival's valuations; the market does have a mind of its own. However, in my view the stock is being given far too much of a leash at this point. In light of all the debt and equity issuance over the past year, the stalled restart, earnings uncertainty and continuing cash burn, things just are not adding up and I remain long CCL $30 Jan. 22 puts.