A couple of years ago, looking at the size of Carnival Corp.'s (CCL -0.66%) debt was enough to make investors cringe -- and flee the stock. Cruise operators were forced to halt sailings during the early stages of the pandemic, and as a result, Carnival took on more and more debt to stay afloat (excuse the pun).
Fast forward to the present, and things look a lot different. Yes, Carnival still carries significant debt, but it's started paying it down -- and has what it takes to continue doing so. On top of this, Carnival has posted record after record this year when it comes to revenue and bookings. And that's pushed the shares higher, to gains of 138% since the start of 2023. Does all of this make this top-performing stock a buy as we head into 2024 -- or have the shares become too pricey?
Image source: The Motley Fool.
Passengers are spending more
First, let's take a look at some of the company's records and how it's reached them. As you can see in the chart above, Carnival reported total revenue of $5.4 billion in the fiscal fourth quarter, ended Nov. 30, a record and an increase of more than 40% year over year. Passenger tickets and onboard spending, which make up that revenue, also advanced in the double digits. This helped the company generate $384 million in operating income, compared to an operating loss in the same period a year ago.
Carnival's full-year revenue of $21.6 billion also reached a record, and it's starting off 2024 with its highest ever booked position. Booking volumes around Black Friday reached a high for that period, and total customer deposits hit a fourth-quarter record. In fact, those deposits came in 25% higher than the previous fourth-quarter record.
What's behind all of this? The reasons are both internal and external. Carnival has invested in advertising, worked with trade partners such as travel networks, and made efforts to increase opportunities for onboard spending. Meanwhile, consumers, after sticking close to home during the earlier days of the health crisis, have rediscovered their love of travel -- and demand for cruising has surged. Of course, the world's biggest cruise operator has benefited from this movement.
Image source: Carnival.
Can the momentum last?
Now, let's take a deeper look into Carnival's earnings report to figure out whether this momentum can last. And here, it's important to consider the company's efforts to gain in efficiency, cut costs, and strengthen its business model to favor long-term growth. This year, the cruise giant announced its SEA Change plan to reach certain performance goals by 2026.
These targets include a 20% reduction in carbon intensity compared to 2019; a 50% increase in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in relation to passenger capacity compared to June 2023 guidance; and a more than doubling of return on invested capital from this year to 2026. In the latest earnings report, Carnival said it's ahead of schedule on SEA Change and next year may be more than halfway to reaching its goals.
The company forecasts 30% adjusted EBITDA growth for the full year 2024 and expects revenue gains to drive sustained growth in adjusted free cash flow next year and into the future. This is key because free cash flow is the tool to pay down debt. And speaking of debt, Carnival paid off $6 billion to end the year with about $30 billion in debt -- earlier in the year it had only expected to pay down $3 billion.
Is Carnival stock still a buy after the 2023 gain?
And this quarterly performance isn't a one-time thing: Carnival has exceeded its own expectations in every quarter this year. As a result, investors have flocked to the shares, spurring the triple-digit increase. Things are looking good for Carnival, but is it still a buy after this top share price performance?
It's clear Carnival's growth is far from over, as it's still in the early days of its recovery and growth plan -- and its progress so far indicates potential for this momentum to last. Of course, the one thing Carnival can't control is cruise demand, but analysts forecast a compound annual growth rate in the double digits for the market over the coming decade. This and Carnival's market leadership and efforts to connect with cruise fans are reasons to be confident about ongoing performance -- from an earnings and share price perspective.
Even considering Carnival's gains this year, the stock still trades much lower than in pre-pandemic days, and at 1.2x sales, it's cheaper by this measure than prior to the pandemic. All of this means Carnival makes a great stock to buy right now as it heads toward smoother seas over the long haul.
