Shares of Carnival Corp (CCL 2.30%) have been in a steady downtrend since December. They're off by about 18% in 2024, according to data from S&P Global Market Intelligence.
The market appears concerned that the company may not be able to keep up with high expectations. Still, this weakness is at odds with the impressive operating and financial trends the cruise line giant is posting as it finally sails past its pandemic-era disruptions.
With earnings and cash flow expected to climb through the busy summer season, could the stock be a good addition to your portfolio? Here's what you need to know.
NYSE: CCL
Key Data Points
Carnival is off to a strong start in 2024
A lot has changed for Carnival in recent years. The company last reported its fiscal first-quarter results in late March, and they were highlighted by several records. Revenue of $5.4 billion increased 23% year-over-year, surpassing the $4.7 billion pre-pandemic peak from Q1 2019.
That momentum was driven by a combination of capacity growth as the cruise line continues to deploy new ships, while also managing to push booking prices significantly higher. Q1 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $871 million was up from $382 million in the prior-year quarter.
By most measures, cruising is now more popular than ever, and Carnival is seeing strong demand across its brand portfolio.
Image source: Getty Images.
Maybe the most telling metric is the level of customer deposits, which reached $7 billion, up from $5.7 billion in Q1 2023. These are the initial payments made for future cruises, offering a good indication of the company's growth tailwind and earnings effect. Carnival President and CEO Josh Weinstein commented on these themes during the last earnings conference call:
With the vast majority of this year's business now booked, we have even more conviction in delivering record revenues and EBITDA, along with a step change improvement in operating performance lasting well beyond 2024.
The early 2024 trends were good enough for management to hike full-year guidance. Carnival is forecasting an adjusted EBITDA of around $5.63 billion compared to the prior $5.6 billion target.
The company now sees 2024 adjusted earnings per share of approximately $0.98, revised higher from the previous $0.93 estimate offered last December. Notably, 2024 is set to mark Carnival's first year of profitability since fiscal 2019.
What's next for Carnival Corp?
Several catalysts support a positive outlook looking ahead to 2025 and beyond.
Carnival is adding capacity, with three new ships launching this year on top of the 13 deliveries since 2020. This expansion translates into more opportunities to generate revenue and earnings through a variety of onboard products and services. At the same time, the company expects the pace of deliveries to slow with just three or four planned deliveries between 2025 and 2028.
That's important because the reduced investment requirement should allow free cash flow to ramp up and help pay down the company's last reported $28.5 billion in long-term debt. While this level is at least manageable considering the significant level of current underlying cash flow, deleveraging going forward could help support a repricing of the company's equity value higher.
Investors can look forward to the July 2025 opening of Celebration Key, Carnival's private port resort-style destination. The new concept will likely spur excitement toward the brand and propel a new wave of booking demand. The company expects this "game-changing asset" on the island of Grand Bahama to lift margins and passenger yields by keeping guests within the Carnival ecosystem.
Final thoughts
Overall, as long as the global economy remains resilient, Carnival is well-positioned to keep growing.
With the stock trading at a forward price-to-earnings (P/E) ratio under 16 against management's 2024 EPS guidance, I believe there is good value for this industry leader. It hasn't been smooth sailing for Carnival shares in recent years, but investors who believe in the strategy and long-term potential should be willing to stay on course.
