Shares of Carnival Corp. (CCL 5.69%) opened higher on Tuesday after the company posted better-than-expected financial results. The beat on both ends of the income statement shouldn't really come as a surprise. Revenue rising 18% to $5.78 billion -- ahead of the 16% increase that it initially targeted -- isn't a shock, even if it did fall short of analyst targets last time out.
Momentum at rivals Royal Caribbean (RCL 3.83%) and Norwegian Cruise Line (NCLH 4.59%) has been strong. Both of them report on a different fiscal year, so they had already tipped the market off to strong bookings trends earlier this calendar quarter.
The bottom line is where the top-line beat became an outright blowout. Carnival clocking in with a reported profit of $0.07 per share or an adjusted profit of $0.11 per share may not seem like much, but this is a seasonally sleepy period for cruise lines before summer crowds start walking up the gangway. Wall Street pros were holding out for a small loss, but this was an even easier call to make than the revenue beat. Carnival is back, and it might not be too late to come aboard.
NYSE: CCL
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Buy, sail, or hold
"Don't be surprised if Carnival comes through with a profit," I wrote earlier this week.
This doesn't make me a market maven or a modern day Nostradamus. It was actually a pretty easy call to make. Carnival has now landed well ahead of analyst earnings estimates for seven consecutive quarters, and the three previous beats were by a double-digit percentage margin. With market forecasts calling for a loss of just $0.02 per share, even a modest beat would push it north of breakeven. It's the first time that Carnival served up a profit for its fiscal second quarter in five years.
All three of the country's largest cruise lines had also been posting positive updates about the telltale wave season. This is the period between the end of the holiday season through late March when operators to tend to have their most aggressive promotional campaigns to fill up their cabins for the balance of the year and beyond. In an unusually bullish move, Royal Caribbean and Norwegian boosted their guidance just three weeks after announcing quarterly results earlier this year. The three-week clock on Carnival starts now.
Image source: Getty Images.
There is still upside here
Forget the doomsday narrative that seemed possible in 2020 and 2021 when the pandemic shuttered operations for more than a year. All of the cruise line stocks are back, and the climate was even kind of enough for leading river cruise operator Viking (VIK 5.54%) to go public at the beginning of last month.
Viking is a winner, up 29% since hitting the market at $24. Carnival's top rival, Royal Caribbean, is also beating the market with a nearly 20% gain so far this year. The real surprise here is why Carnival stock was still trading in the red in 2024 heading into Tuesday morning's financial update.
Carnival stock was down 12% this year through Monday's close. It doesn't seem fair. Estimates keep inching higher, and on Tuesday it boosted a couple of key metrics in its guidance. The prospects continue to improv. Total customer deposits scored another all-time high of $8.3 billion at the end of May, $1.1 billion more than what Carnival was holding a year earlier.
The stock is cheaper than you probably think. Carnival's raised bottom-line outlook now finds it eyeing adjusted earnings of $1.18 a share this year, well ahead of the $1.01 a share that analysts were targeting before Tuesday's update. This prices the stock at less than 14 times this year's earnings based on Monday's close before the shares ticked higher the following day. The multiple drops to 11 if we look out to next year based on what Wall Street pros were modeling before the report. They will likely push those profit goals higher (and the stock's multiple lower).
It's true that Carnival's multiple is substantially higher if we base it on enterprise value instead of the garden variety market cap. Carnival and its rivals had to raise a lot of debt when they weren't issuing new shares to literally and figuratively stay afloat in the wake of the pandemic. Carnival is still making moves on that front. It has repurchased $6.6 billion of its debt in the last five quarters, and that activity should only ramp up as its business gets stronger.
There is still money to be made in cruise line stocks. Carnival's blowout showing this week is just the latest affirmation that a bon voyage is possible.
