What happened
Shares of cruise stock champion Carnival Corporation (CCL -0.66%) (CUK -0.88%) hit an iceberg on Monday, sinking 11.1% through 1 p.m. ET despite exceeding analyst expectations for 2023's second-quarter sales and earnings.
Sailing into Q2, Wall Street had forecast a $0.34 per-share loss for Carnival on sales of $4.8 billion. As it turned out, Carnival lost less money than anticipated -- only $0.32 per share -- and recorded more revenue than hoped -- $4.9 billion.
But Carnival stock is falling anyway. Why is that?
So what
Before getting too concerned about the wave of selling that broke over Carnival today, take a step back and consider where this stock is coming from. Since the start of this month, Carnival shares have surged 41%. Since the start of the year, Carnival stock has nearly doubled, rising 96% in price through Friday's close.
In other words, if Carnival stock is down a little today, it's still up a lot from where it once was. And this suggests that far from punishing Carnival for reporting bad news this morning, investors may actually simply be cashing in some of their winnings after seeing Carnival report good news.
And make no mistake: In many respects, Carnival's news was good. Earnings beat expectations (albeit only by being less negative than feared). And $4.9 billion set a new record for Q2 revenue at Carnival, meaning it was even better revenue than Carnival reported in second quarters that came prior to the COVID-19 pandemic. (It wasn't an all-time record for all quarters, however. Historically, Q3 is usually Carnival's strongest quarter, and in Q3 2019, for example, Carnival did $6.5 billion in business.)
Now what
Now the question is whether Carnival can follow up its Q2 feat by setting a new Q3 record for revenue as well.
In this regard, guidance looks promising. Carnival management says demand for cruises is still accelerating, and "total bookings made during the quarter" hit "a new all-time high." Pricing is strong, and Carnival is raising prices. In Q3, management says it has "107%" occupancy, which would seem to bode well for revenues, and adjusted net income could be as much as $1 billion or better.
Granted, management still isn't forecasting a profit for the full year, and analysts agree the company will probably lose money in 2023 -- about $0.30 per share. But so long as the present trends continue, Carnival should be back to profitability by 2024, earning perhaps $0.80 per share and growing steadily from there.
At 17.5 times forward earnings and with growth looking good, it's really only Carnival's heavy debt load ($31 billion versus a market capitalization of $18.3 billion) that's keeping me from recommending Carnival stock at this point.
