President Donald Trump and Democratic nominee Joe Biden disagree on important issues, including immigration enforcement and controlling the coronavirus pandemic. That means a change of leadership could have significant impacts on companies that are influenced by these variables. Let's explore the reasons Carnival Corporation (NYSE: CCL) and Palantir Technologies (NYSE: PLTR) could face challenges if Joe Biden becomes the next president.
Joe Biden has indicated that, if elected, he plans to place more value on the viewpoints of scientists and other health authorities when combating the coronavirus pandemic. Biden's stance is in contrast to the Trump administration, which has arguably prioritized the economy. A Biden presidency could help extend the CDC's no-sail order (currently set to expire at the end of October) -- currently hurting Carnival Corporation and other cruise stocks that are losing money while their operations remain grounded.
According to the Wall Street Journal, Trump's White House blocked an order from the CDC director Dr. Redfield to keep cruise ships docked until mid-February. The magazine further reports that Trump and Redfield have serious disagreements about how to control the pandemic. The current no-sail order can be extended beyond its existing expiration, based on the discretion of health authorities and the White House.
Meanwhile, COVID-19 infections are surging in many parts of the country, and the CDC has enhanced its travel advisory warning from level 2 to level 3: Avoid Nonessential Travel—Widespread Ongoing Transmission.
Whether Biden will "listen to the scientists" (as Trump derisively claims) or intercede on behalf of the cruise industry remains to be seen. But we do know that further extensions of the no-sail order could be a disaster for Carnival Corporation, because it needs to resume operations as quickly as possible to end its cash burn. The company's revenue fell 99.5% from $6.53 billion to $31 million after generating zero passenger ticket sales in the third quarter, and management expects to burn through approximately $530 million per month in the fourth quarter as operations remain suspended.
Immigration is another issue where Biden and Trump disagree. The Trump administration has dramatically ramped up immigration law enforcement action and boosted funding for Immigration and Customs Enforcement (ICE) to the tune of $200 million, according to CNN. Biden has taken an oppositional approach to the immigration issue and plans to scale back enforcement activities, according to his website, joebiden.com.
If Biden is elected, his policy shift could hurt defense contractors like Palantir Technologies, which helps ICE conduct surveillance and compile evidence against undocumented migrants. Palantir has two contracts with ICE -- one for the agency's Investigative Case Management (ICM) system and the other for FALCON,controversial software that allows the organization to access sensitive information from other federal agencies. Together these contracts are worth as much as $92 million.
Palantir expects to generate $1.06 billion in revenue in 2020, which means the ICE contracts represent under 10% of its sales. But the company faces significant reputational risk from its work with ICE, and a Biden presidency could make this worse because of the candidate's characterization of some aspects of immigration enforcement as moral issues.
The controversy comes at a difficult time for Palantir, because the company's growth strategy requires it to expand beyond government contracts to court potentially more reputation-sensitive commercial clients.
An uncertain time for investors
The election is seven days away, and Biden's lead over Trump stands at around 10%, according to polls cited by the BBC. And while it's impossible to predict the future, Carnival Corporation and Palantir Technologies could face downside risk during a potential Biden presidency.
Carnival looks like the risker bet because of its high exposure to the CDC's politically sensitive no-sail order. Palantir is more likely to overcome these political headwinds because ICE contracts only make up a small fraction of its total revenue.
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