After a huge turnaround that resulted in a 130% jump last year, Carnival (CCL 0.64%)(CUK 0.32%) stock is down 14% this year. This is at a time with record bookings, increasing revenue, improving profits, and other positive signals, as well as the lower price, that make it look even more attractive.
Here are three reasons to buy Carnival stock right now.
1. Unstoppable demand
Carnival has made an incredible rebound from zero revenue early in the pandemic. It's flooded with demand globally, and it's booked out over a long curve into 2025.
Last year, the company reported the most dramatic increases, but they haven't stopped. And as demand stays strong, Carnival has been able to keep bookings strong while increasing rates. CEO Josh Weinstein said that second-quarter prices were higher on limited inventory, third-quarter prices are higher due to peak demand, and fourth-quarter prices are staying high.
Every operating metric was better than expected in the 2024 fiscal first quarter (ended Feb. 29). Revenue was a record $5.4 billion, a 23% increase over last year's levels. Booking volume was at an all-time high, and customer deposits were a first-quarter record of $7 billion.
NYSE: CUK
Key Data Points
That's translating into improved profitability. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased from to $871 million this year. Loss per share narrowed from $(0.55) last year to $(0.17) this year. Operating income was $276 million. Cash from operations was $1.8 billion, and free cash flow was $1.4 billion.
Will demand slow down at some point? Probably. But Weinstein says this isn't the pent-up demand anymore. Rather, Carnival is working hard to get new customers, and it's working.
"Our record book position and activity did not just happen, and it is not the result of pent-up demand for repeat guests built up during the pause, which is now years in the rearview mirror," he said.
New customers, combined with already loyal customers, is generating demand now and will lead to greater demand going forward.
2. Efficient management
Carnival is back in action, but it's weighed down by a hefty load of debt. The company ended the first quarter with more than $30 billion in total long-term debt, which is off of its peak but still well above historical levels. It doesn't have a ton of wiggle room with a debt level this high.
Management is carefully reducing the debt while maintaining a flexible financial position, and it's using the increasing cash from operations to pay it off. It paid down $1 billion of debt in the first quarter, including some of its highest-interest notes. It extended its revolving credit facility and increased its borrowing capacity to $2.5 billion to account for risks that could impact its operations.
These kinds of events do happen, and Carnival is keeping itself prepared for unexpected events. For example, its operations were affected by the Baltimore bridge collapse in March, and the company estimates a $10 million impact in adjusted EBITDA and adjusted net income for the full fiscal year based on the collapse.
3. A dirt cheap price
The dirt cheap price makes this stock look like a deal too good to miss. Carnival stock trades at a price-to-sales ratio of 0.9. Even though the company is performing well and managing outsized demand, shares don't necessarily warrant a high valuation. It isn't profitable on a generally accepted accounting principles (GAAP) basis, and investors view Carnival as a risky stock due to its high debt.
Investors need to know about the risks, not just the positives. But the way I see it, Carnival has the brand, management, operations, and demand to stay on top and keep growing. It's not an investment for the highly risk averse, but for most long-term investors, Carnival is an excellent stock to buy at a bargain price.
