It's been a "love boat" for Carnival Corp. (CCL -0.66%) investors this year. The stock is up 130% in 2023, heading into the final two trading days of the year. The world's leading cruise line operator has made the most of the industry's travel recovery. Can it keep coasting in the right direction in 2024?
There will be challenges, of course. However, Carnival is in a great position to keep beating the market in the year ahead. Let's go over some of the reasons the bellwether for cruise line stocks could double again in 2024.
1. Momentum is strong into fiscal 2024
Carnival closed out fiscal 2023 on another encouraging note last week. Revenue surged 41% to hit a new fiscal fourth-quarter record of $5.4 billion, exceeding its earlier guidance. Top-line results also set a new high-water mark. In short, revenue has already more than recovered to pre-pandemic levels.
Fans of cruising are back. Occupancy levels topped 101% in Carnival's latest quarter, and customers are willing to spend more on their watery escapes than before the 2020 shutdown. Net per diems for its North American brands -- an industry metric that cranks out the average net revenue per passenger for each cruise day -- is up double digits for Carnival compared to 2019.
It's not just the three months ending in November that look promising. Carnival is stocking the pond for a great fiscal 2024, too. The company now has $6.4 billion in total customer deposits on its books for future sailings, topping the previous fourth-quarter high-water mark set just last year by 25%.
Booking volumes around the two weeks that included Black Friday and Cyber Monday last month set a new record for Carnival. In short, Carnival is doing well -- and the skies are clear for an even better fiscal 2024.
Image source: Getty Images.
2. The beats are only getting better
This isn't just a top-line success story. Actual profitability isn't back to pre-pandemic levels. Like its sea-splashing peers, Carnival had to do a lot of desperate things to stay afloat during the prolonged COVID-19-related shutdown. It had to take on new debt at high rates. It issued new shares at low prices. It will take time before Carnival sets a new record for earnings per share.
However, one thing that is definitely improving with this scalable model is its ability to land ahead of Wall Street profit targets. Carnival has consistently beat analyst expectations, and the gap continues to widen with every passing report.
| Quarter | EPS estimate | Actual | Surprise |
|---|---|---|---|
| Q4 2022 | ($0.87) | ($0.85) | 2% |
| Q1 2023 | ($0.60) | ($0.55) | 8% |
| Q2 2023 | ($0.34) | ($0.31) | 9% |
| Q3 2023 | $0.75 | $0.86 | 15% |
| Q4 2023 | ($0.13) | ($0.07) | 46% |
Data source: Yahoo! Finance. EPS = earnings per share.
Yes, Carnival did post a quarterly deficit last week. It ended a streak of 14 consecutive quarterly losses three months ago by turning a profit for the first time since 2019. Nevertheless, it's not a problem that it followed that up with a small net loss this time. This is a seasonal business. Carnival stock has more than doubled this year because it's well ahead of where investors thought it would be at this point a year ago.
3. The stock is cheaper than you think
Many of the stocks that have doubled in 2023 are trading at rich forward multiples, but Carnival isn't as expensive as its stock chart -- or trailing financials -- seem to suggest. Carnival is trading for a reasonable 19 times projected earnings for the new fiscal year that began earlier this month. The earnings multiple drops to less than 14 if we look out to fiscal 2025.
Making the math look even better, did you see how Carnival keeps making Wall Street pros look like serial low-ballers? There's a decent chance the cruise line operator will beat today's bottom-line forecasts over the next two years.
Carnival is also helping make its own luck. It may have barely broken even on an adjusted basis for all of fiscal 2023, but it's generating a lot of free cash flow. Carnival has more than $30 billion in debt, and that is a lot of leverage.
However, it has already paid that down by $5 billion over its peak in the fiscal first quarter of 2023. It expects to continue to reduce its debt in 2024. As long as the global travel market keeps treading water, Carnival and the rest of its peers should be able to keep moving higher in 2024.
