of stocks Carnival Corporation (NYSE: CCL) It has been on a steady downward trend since December and is expected to fall about 18% in 2024, according to data from S&P Global Market Intelligence.
The market seems concerned that the company may not be able to live up to lofty expectations, but this weakness is at odds with the impressive operating and financial performance the cruise line giant is reporting as it finally emerges from the turmoil of the pandemic era.
With earnings and cash flow expected to rise through the busy summer season, is this stock a good addition to your portfolio? Here's what you need to know.
Carnival off to a strong start in 2024
A lot has changed for Carnival in recent years. The company reported its first-quarter results in late March, and a few records stood out: Revenue was $5.4 billion, up 23% from the previous year and surpassing its pre-pandemic peak of $4.7 billion in the first quarter of 2019.
Momentum was driven by a combination of increased capacity as cruise lines continued to deploy new ships and successfully increased booking prices significantly.First-quarter adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $871 million, up from $382 million in the same period last year.
By most standards, cruises are more popular than ever, and Carnival is seeing strong demand across its brand portfolio.
Perhaps the most visible metric is the level of customer deposits, which increased from $5.7 billion to $7 billion in the first quarter of 2023. These are upfront payments made for future cruises and provide a good indication of the company's growth tailwinds and impact on earnings. Carnival's President and CEO Josh Weinstein commented on these themes during the company's last earnings call:
With the majority of this year's business already booked, the company is even more confident in delivering record revenue and EBITDA, as well as continuing to achieve significantly improved operating performance in 2024 and beyond.
Trends in early 2024 were favorable enough for management to raise its guidance for the full year. Carnival now expects adjusted EBITDA to be about $5.63 billion, compared with its previous target of $5.6 billion.
The company now expects adjusted earnings per share of about $0.98 in 2024, up from its previous guidance of $0.93 provided in December. Notably, 2024 is on track to be Carnival's first profitable year since fiscal 2019.
What's next for Carnival Corp?
Several factors support a positive outlook for 2025 and beyond.
Carnival is adding capacity with three new ships coming into service this year, in addition to 13 deliveries since 2020. This expansion means more opportunities to generate revenue and profits through a variety of products and services on board. At the same time, the company expects the pace of deliveries to slow, with three or four deliveries scheduled between 2025 and 2028.
This is important because reduced investment requirements should increase free cash flow and help pay down the company's last reported $28.5 billion in long-term debt. Given the company's current substantial level of underlying cash flow, this level is at least manageable, but future debt reduction could support an increase in the company's equity value.
Investors are looking forward to the July 2025 opening of Carnival's private port resort-style destination, Celebration Cay. This new concept will raise brand expectations and drive a new wave of booking demand. The company expects this “game-changing asset” on Grand Bahama Island to improve margins and passenger revenues by retaining guests in the Carnival ecosystem.
Final thoughts
Overall, Carnival is well positioned to continue growing as long as the global economy remains resilient.
I believe there's value in this industry leader, with a price-to-earnings (P/E) ratio of just under 16 times management's EPS guidance for 2024. It hasn't been smooth sailing for Carnival stock in recent years, but investors who believe in the company's strategy and long-term potential should stay on track.
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Dan Victor has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.
Carnival Corp. Shares Down 18% This Year: Is It a Time to Buy? was originally published by The Motley Fool.
