Investors have been excited about Carnival (CCL -1.07%) stock for a while, but the stock has been soaring for the past few weeks in anticipation of the second-quarter results. Well, that time has come. Carnival Cruise Line will report earnings this Monday.
Let's see what's whetting investors' appetites, and if Carnival can come through on expectations.
The rebound is here
Carnival, which is the largest cruise operator in the world, and which demonstrated mostly steady growth before the pandemic, was having a hard time bouncing back from its complete shutdown at the beginning of the pandemic. But recent progress is getting investors excited.
Since the risk has been high, but the potential strong, Carnival's story has captured a lot of attention. It borrowed massive sums to remain viable when there was no revenue coming in, but it's still around, and cruise-goers are returning in large numbers.
The 2023 first quarter was somewhat of a turning point for the company, since Carnival recorded its highest quarterly booking volume ever.
Beyond that, it exceeded expectations across measures in the first quarter. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $382 million beat the high point of guidance of $350 million, and adjusted net loss of $690 million was better than the projected $750 million to $850 million. Loss per share of $0.55 was better than Wall Street's expectations of $0.60.
Revenue for the quarter was $4.4 billion, or at 95% of 2019 levels. That means Carnival is just off of its pre-pandemic levels. And, with booking at highs, it's poised to reach those levels -- and it may have done that in the second quarter.
Does that mean everything's fine now?
Indications are that Carnival will get back to growth very soon. Total customer deposits in the first quarter were a first-quarter record $5.7 billion, 16% higher than the previous record in 2019. Management said it's well booked for the remainder of the year, and it expects the full year to have occupancy of at least 100%, getting back to historic levels over the summer.
While this is all good news, there's still things to be wary about. Specifically, debt.
The company raised billions of dollars in debt to keep going when cruises weren't cruising, and it diluted its shares through issuing more stock. These were necessary moves if the company had any chance at survival, but it's now saddled with this debt, which could take many years to pay off.
Management mentioned several times in the first quarter earnings report that Carnival is in a comfortable cash position. Management also stated that it believes its debt is past its peak, and that the company has the cash generation to pay it off. But its balance sheet is likely to be stressed for a long time, which could hamper operations. It also puts the company at risk if there were to be any new challenges.
Should you buy the stock before the report?
If everything goes according to plan, Carnival should deliver the desired results, and the stock has the potential to jump. There's certainly reason to plan to buy before the earnings are released.
But the market isn't predictable. There are a few other scenarios that could play out, including worse-than-expected results. Even if the second quarter earnings report does meet expectations, the stock has gained so much over the past few weeks that it won't necessarily go too much higher. Actually, after weeks of gains, the stock price has plateaued this past week in anticipation of Monday's news.
In any case, you can't time the market, and it doesn't always end well when investors bet on a short-term spike. If you are considering adding Carnival stock to your portfolio, it should be because you can envision its long-term potential, and because at this price, shares are trading at only 1.3 times trailing 12-month sales, which is a bargain for a stock with growth potential.