The earliest days of the pandemic hurt travel and entertainment companies, and giants Walt Disney (DIS 0.81%) and Carnival (CCL 4.92%) (CUK 4.95%) felt the impact in a big way. For a time, Disney had to shut down its parks and halt its cruises. And Carnival had to anchor its ships as well.
In recent times, though, people have returned to traveling and going out. This is great news for both companies -- and it's reflected in their revenue. At the same time, Disney and Carnival look cheap compared to their past valuations. Now could be a great time to get in on these industry-leading players.
But if you could only buy one, which one should you choose? Let's find out.
The case for Disney
Yes, the pandemic hurt Disney. But another issue, specific to the company, has weighed on performance: ballooning costs as the company sought to grow its streaming business. Longtime chief executive officer Bob Iger returned to the job late last year to rein in expenses and set Disney on the path to growth.
A few months ago, Iger offered details -- some of the measures include jobs cuts, lowering marketing expenses, and focusing on key brands. He set a goal of $5.5 billion in cost savings.
Iger's plan is already bearing fruit. In the direct-to-consumer business, which includes streaming, the company improved its operating loss by $400 million in the quarter ended April 1. That's compared to the previous quarter. At the same time, Disney reported a double-digit increase in revenue year over year -- and growth in diluted earnings per share.
Importantly, Disney's big revenue driver -- its parks, experiences, and products business -- continues to deliver double-digit growth in revenue and operating income. That's even as it faces the headwinds of higher inflation and the costs of launching new offerings for guests.
NYSE: DIS
Key Data Points
Meanwhile, Disney shares trade for 23 times forward earnings estimates. That's down from more than 32 less than a year ago.
The case for Carnival
Carnival essentially had to stop operations during the early stages of the pandemic. The world's biggest cruise operator reported a loss -- and debt soared.
But there's reason to be positive about Carnival and its recovery today. The company is making significant progress across the board. In the most recent earnings report, Carnival reported a narrower-than-expected loss. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $382 million also beat expectations.
The $4.4 billion in revenue during the quarter was 95% of levels seen in 2019 -- a sign that cruise travel is returning to normal levels. The company delivered more signs that travelers are opting for cruising again. Quarterly booking volumes reached a record high, and total customer deposits reached their highest level ever for a first quarter.
All of this sounds great. But there's still that problem of debt. Carnival offered some good news in this area too. The company's cash from operations turned positive in the quarter -- and Carnival said growth here will help pay down debt.
This won't happen overnight, of course, but over time. If Carnival is able to grow revenue and return to profit, the company will have what it takes to cut debt and thrive.
NYSE: CCL
Key Data Points
Today, Carnival trades for about its lowest ever in relation to sales.
Disney or Carnival?
Carnival looks reasonably priced, even though the stock has advanced almost 30% this year. But it's possible the shares may have climbed a bit quickly, especially considering the company's debt level.
A look at the debt-to-equity ratios for Disney and Carnival suggests Carnival relies more on debt -- and is higher risk.
DIS Debt to Equity Ratio data by YCharts
Disney may be a safer bet -- and offer more of an opportunity to get in before the stock takes off. The stock performance doesn't yet reflect the company's progress so far. Disney's gained about 6% this year.
The latest earnings report shows Iger's plan is working. And Disney already is profitable and benefits from the strong growth of its parks, experiences, and products business.
The general return to travel and entertainment is good news for both Disney and Carnival. This could boost both companies over time. But if I had to choose the best stock to buy right now -- considering valuation, risk, and future prospects -- I would go with Disney.
