Anyone keeping tabs on Carnival (CCL 1.41%) isn't surprised to learn its stock hasn't made any meaningful forward progress since its early 2020, pandemic-prompted plunge.
The leisure cruise company survived the pandemic, but was forced to borrow heavily to do so. Economic lethargy in the meantime also appears to work against discretionary spending. That's why Carnival shares are still down from their pre-pandemic peak, and nearly 70% below their record high reached in early 2018. Investors simply fear the worst.
The fact is, this popular cruise company is not only growing in spite of the apparent headwind, but is digging its way out of debt as it grows. The market's just not been willing to reflect this reality into the stock's price.
That spells buying opportunity for you.
Carnival at a glance
There's the Carnival you know. That's 29 ships that sail under the same name, offering affordable vacation experiences.
Then there's the Carnival you may not know. Princess, Holland America, Costa, AIDA, and a handful of other smaller cruise companies are also part of the organization. All told, Carnival owns 93 boats, with delivery of five more slated within the next few years.
Analysts expect the company to do $26.1 billion worth of business this year, while the company itself anticipates turning $6.7 billion of that into EBITDA, and about $2.5 billion into net income. All of those figures are measurably better than last year's, extending a streak of progress that's been in place since 2022.
CCL Revenue (TTM) data by YCharts
So why's the stock still down so much? Mostly because most investors remain convinced this company may never thrive again, bogged down by too much debt in addition to tepid, inflation-crimped demand.
But the crowd is likely wrong.
Much more to like than not
Carnival is certainly facing plenty of challenges. It's sitting on $25.5 billion in long-term debt that's costing it on the order of $400 million per quarter, for instance. That's roughly one year's worth of revenue, for perspective, and almost as much as the company's current market capitalization.
In other words, that's a lot of debt.
It would also be naïve to ignore the toll that lingering inflation and worries over new tariffs are taking on consumers' psyches. The University of Michigan reports consumer sentiment slumped to more than a two-year low earlier this month, and the nation's retail spending has remained wobbly since 2022. It's not an environment that seemingly spurs interest in leisure travel.
Except, there are some services consumers are willing to purchase regardless of the cost. Leisure cruises -- which are more affordable experiences than most other vacation options -- are one of them. AAA predicts a record-breaking 19 million Americans will take a cruise this year, up 4.5% from last year's count, and jibing with Global Growth Insights' 2025 outlook for the worldwide cruise market. And, as Morningstar analyst Jamie Katz noted just a few days ago, "demand for leisure travel remains elevated" despite the environment, adding that this dynamic along with the company's "ability to reposition and redeploy ships to faster-growing and underrepresented regions" supports Carnival's profit-growth potential.
Carnival's own numbers confirm this tailwind, too. During its fiscal first quarter ending in February, the company broke yet another first-quarter revenue record with a top line of $5.8 billion, while deposits toward future trips also reached a Q1 record of $7.3 billion. These bookings are also, on average, further out than they've ever been before, underscoring the commitment that consumers have to their travel plans.
The company adds that its "new-to-cruise" customer bookings were also strong during Q1. Once they take their first one, most of these consumers take another cruise, and then another.
That's still just the beginning. Market research firm Precedence Research believes the global cruise industry will grow at an average annualized pace of nearly 6% through 2034. That's not enormous growth, but it's growth that will be led by the North American market where Carnival is already a well-established name.
The stage is set for whenever the market is finally ready
None of this is being reflected in the stock's recent -- and not-so-recent -- performance, of course. As was noted, Carnival's debt load is weighing on investors' minds. So is economic malaise.
NYSE: CCL
Key Data Points
But neither should be quite the hang-up they currently are. Not only is the lethargic economy not discouraging consumers from continuing to enjoy affordable experiential travel, Carnival is earning enough operating income right now to chip away at its debt. Although $25.5 billion is still a massive debt burden to be sure, that's measurably less than the nearly $33 billion in long-term liabilities the company was nursing as of early 2023. Perhaps more important to interested investors, this debt's coming down because Carnival's got a specific, deliberate, and workable plan to bring it down.
This might help convince you Carnival shares are an undervalued bargain. Despite the stock's persistently subpar performance since 2020, the analyst community remains bullish. The vast majority of these professionals still rate the ticker as a strong buy, with a consensus price target of $28.55. That's more than 30% above Carnival shares' recent price, which isn't a bad way at all to start out a new trade.
Just be prepared for plenty of continued volatility, until enough investors finally see and believe how well this company's actually doing.
