The performance of Carnival Corp (NYSE: CCL) has likely frustrated its long-term investors over the last few years. The stock achieved a peak closing price in January 2018, reaching as high as $71.94 per share. While it fell into a bear market in 2018 and 2019, the stock lost nearly all its value when the pandemic shut down its industry in early 2020.
From that point, the cruise line shut down for over a year, and even when it resumed sailing, the path to 100% occupancy (defined as two people in every cabin) took years. Despite the ongoing challenges created by the pandemic, Carnival managed to stay afloat, and now it’s reporting record bookings,
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All this is making a case to buy the cruise line stock, which is still 64% below its high. Here’s why.
As mentioned above, the good times have returned to Carnival. Occupancy averaged 105% in fiscal 2024 (ended Nov. 30). And as of the end of the fourth quarter (Q4), it has booked approximately two-thirds of its cabins for 2025. This means the company has needed to discount less to fill its cabins, a positive sign for profitability.
Additionally, since 43% of all passengers cruise on Carnival-owned ships, its industry leadership will likely remain unchallenged in the foreseeable future. So strong are these bookings that it took its total financings related to new builds to $7.8 billion, helping the company capitalize on its bookings growth at preferential interest rates.
It has financed these costs despite a staggering debt load. Indeed, its $27.5 billion in total debt sounds daunting considering the company’s shareholders’ equity (book value) of $9.2 billion. However, that is a reduction of $3.5 billion for fiscal 2024. Shareholders’ equity also rose during that time from $6.9 billion, a sign of its strengthening balance sheet.
Moreover, only $1.5 billion in debt matures in fiscal 2025 and an additional $2.7 billion in fiscal 2026. This means that at current payoff levels, it can retire these debts without the need to refinance, further improving company finances even as Carnival invests heavily to add capacity.
Additionally, Carnival investors may remember 2024 as the year it returned to profitability. The company reported revenue of $25 billion in fiscal 2024, a yearly improvement of 16%. Amid slower expense growth and falling interest expenses amid the debt reductions, Carnival earned a net income of $1.9 billion for the fiscal year. In comparison, the company lost $74 million in 2023.
Looking forward, its recovery is nearly complete, so analysts forecast revenue growth of only 4% in fiscal 2025. Still, while Carnival offered only limited guidance, it expects adjusted net income to rise 20%, which points to continued improvements. Rising optimism about the company helped boost the stock, which rose 35% over the past year.
Those gains are likely not fully reflected by valuations. Its trailing price-to-earnings (P/E) ratio is only 23, and thanks to expected improvements in fiscal 2025, its forward P/E ratio stands at 15. That low forward earnings multiple could present an opportunity for investors as Carnival stock looks to recover from its years-long slump.
Amid an improving performance, Carnival stock appears ready to sail to a full recovery. Indeed, Carnival’s record bookings, falling debt levels, and plans to add capacity bode well for the company. Additionally, the recovery to full capacity shows demand remains healthy for cruise vacations.
So strong are its bookings that it has reduced its massive debt load while financing the construction of new ships to meet the heavy demand.
The company’s growth has led to a renewed interest in Carnival stock, meaning that it could reach its all-time high and beyond in the foreseeable future. Knowing that, investors may want to consider Carnival while valuations are at current levels.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.
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