Summer is considered peak season for the cruise line industry. Families typically have a summer break from school. The warm ocean waters are that much more inviting.
Carnival Corp. (CCL +0.41%) knows all about the waves. Nearly a third of its annual revenue and most of its fiscal 2025 profit were generated in the fiscal third quarter, which starts again next week.
Carnival stock has risen 21% over the past year, outpacing its two closest publicly traded rivals. This isn't a regatta, but bragging rights are cool. I think things can get better for Carnival from here.
Let's go over three reasons to consider going on this Carnival ride.
Image source: Getty Images.
1. It's an earnings sensation
June is usually a quiet time for financial updates, but with its fiscal second quarter ending this week, Carnival will announce its latest results in late June. Carnival's stock has risen enough to attract attention, but not enough to fear a sell-off even if results are decent.
If recent history is any indication, the fresh numbers should be decent. Expectations are low. Analysts see revenue rising 6% while earnings growth remains flat. The $0.34-a-share profit that Carnival is expected to deliver in four weeks is just below the $0.35 a share it served up a year earlier.
Rising fuel and food costs should weigh on margins, but Carnival has an ace up its sleeve. It has consistently trounced quarterly bottom-line expectations for almost three years.
| Period | EPS Estimate | Actual EPS | Surprise |
|---|---|---|---|
| Fiscal Q3 2023 | $0.75 | $0.86 | 15% |
| Fiscal Q4 2023 | ($0.13) | ($0.07) | 46% |
| Fiscal Q1 2024 | ($0.18) | ($0.14) | 22% |
| Fiscal Q2 2024 | ($0.02) | $0.11 | 650% |
| Fiscal Q3 2024 | $1.15 | $1.27 | 10% |
| Fiscal Q4 2024 | $0.07 | $0.14 | 94% |
| Fiscal Q1 2025 | $0.02 | $0.13 | 485% |
| Fiscal Q2 2025 | $0.35 | $0.24 | 46% |
| Fiscal Q3 2025 | $1.32 | $1.43 | 9% |
| Fiscal Q4 2025 | $0.25 | $0.34 | 39% |
| Fiscal Q1 2026 | $0.18 | $0.20 | 9% |
Data source: Yahoo! Finance. EPS = earnings per share ( adjusted ).
This isn't just a streak of 11 straight positive earnings surprises. The beats have come in at least 9% above Wall Street pros' models. What's more likely to happen, stretching this run to 12 in June or imploding under the whirlpool of inflation rising and consumer confidence taking on water? I like Carnival's chances to go for an even dozen beats in June.
NYSE: CCL
Key Data Points
2. The value gap is real
Carnival is the largest cruise line by trailing revenue, but it doesn't wear the market cap crown. That regal accessory belongs -- fittingly enough -- to Royal Caribbean (RCL +1.04%).
Carnival's market capitalization is just shy of $39 billion, about half Royal Caribbean's $76 billion market cap. Zoom out to enterprise value to account for each cruise line operator's net debt, and Royal Caribbean still leads, $97 billion to $64 billion.
The valuation disparity grows even more interesting when you consider that Carnival's trailing revenue of $27 billion is well above Royal Caribbean's top line of $18.4 billion. As a Royal Caribbean investor, I'll point out that there are good reasons for the valuation premium. Royal Caribbean has historically grown faster and delivered healthier margins. However, Carnival is starting to get its act together.
Earlier this year, Carnival reinstated its dividend. Its board authorized $2.5 billion in stock repurchases. These are moves for a company that has figured it out and is ready to return money to its shareholders. It could close the valuation gap if it maintains its recent bullish momentum.
3. It's not just the inside cabins that are cheap
The third and perhaps best reason to buy Carnival in June is that it's a cheap stock in a largely overvalued market. The stock is trading for a reasonable 13 times this fiscal year's earnings estimate and only 11 times next year's bottom-line forecast.
A lot can go wrong for the industry as a whole and for Carnival in particular. However, bookings remain strong for Carnival's future sailings. Like a pool deck after a limbo party comes to an end, this story is no longer about how low it can go.
