Amid record bookings, larger cruise ships, and more guests aboard, Carnival Corporation (CCL -0.66%) (CUK -0.88%) stock is down 78% from its January 2018 all-time high north of $72 a share.
Sure, the stock has rallied from the lows of last October, but this is just the beginning. With robust and persistent demand for Carnival's cruises and the company's progress toward profitability, I think Carnival stock still offers plenty of upside potential for long-term investors.
Here are three reasons why I'm bullish on this cruise line stock.
1. Strong sequential growth expected in Q2
Following better-than-expected revenue and earnings in the fiscal first quarter, Carnival anticipates second-fiscal-quarter results to be even better. Q1 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) finished at $382, thanks to better passenger revenue, increased ticket prices, and higher occupancy.
For Q2, Carnival projects adjusted EBITDA to reach $600 million to $700 million. If accomplished, this would mark a 57% to 83% sequential improvement over Q1. Occupancy is also expected to be up nicely. Occupancy reached 91% in the first quarter, and management anticipates a rise to 98% or more in the second quarter -- a mere 7 points below 2019's second-quarter levels.
Passenger revenue is expected to exceed 2019 levels by 2.5% to 3.5% (in constant currency) in the second quarter. As a result, net yields are also estimated to rise to $160 in Q2 -- 7.3% higher than Q1's net yields of $149.
2. Best quarterly booking volumes in company history
What began last year with outstanding Black Friday and Cyber Monday ticket sales led to successive booking records for Carnival in the first quarter. For instance, the cruise line's North American segment set new booking records every week throughout January and February.
As for Q2 bookings, CEO Josh Weinstein said during the Q1 earnings call that "strength in bookings has continued into March, supporting our revenue expectations for the remainder of the year." Carnival's fiscal first quarter ended on Feb. 28, so second-quarter results will reveal how successful March bookings actually were.
In reference to pre-pandemic bookings, Weinstein said, "Booking volumes for our North American brands have been running in excess of record 2019 levels for the last six months, and booking lead times are now back to peak levels."
3. Occupancy to approach 2019 levels this year
In another triumph over expectations last quarter, occupancy aboard Carnival's ships reached the aforementioned 91%. Compared to the prior-year occupancy rate of 54%, Carnival has clearly made progress on packing its ships with money-spending passengers.
As Carnival CFO David Bernstein put it, "Full-year 2023 occupancy is expected to be 100% or higher as we close the gap each quarter on occupancy levels as compared to 2019." For reference, occupancy in Q1 of 2019 was 104.8%.
How can a cruise ship be more than 100% occupied? Since occupancy is calculated based on two passengers per cabin, when more than two guests stay in a cabin -- such as children staying with their parents -- 100% plus occupancy can be achieved.
What's also interesting is that Carnival's occupancy keeps ticking up as capacity also increases. Capacity on Carnival's vessels is projected to exceed 2019's level by 4.5% this year. Having retired several aging cruise ships since 2019, the company took delivery of 14 new ships during the same time. These larger and more efficient vessels now comprise nearly 25% of Carnival's overall capacity.
