COVID created rough seas for cruise lines. Four years later, the industry is slowly fighting its way back. Carnival (NYSE: CCL), the world's leading cruise operator, is experiencing a robust recovery after being severely impacted by the pandemic. After plummeting in 2020 from $50+ to under $8, and with considerable volatility since then, shares have been edging upwards since May.
Even though Carnival still faces challenges, this cautious share rise points to good news. The company recently posted its second quarterly net profit since the pandemic and is on track for a full-year profit in 2024. Key financial metrics showed substantial improvement. Its operating income, at $560 million, was 400% better than the prior year, and EBITDA was $1.2 billion, an increase of 75%. These numbers indicate that Carnival is an excellent buy-low opportunity.
What's New?
According to the Cruise Lines International Association’s 2024 report, passenger volume in 2023 was 31.7 million, a rise of 7% from 2019. The report found that 27% of those on cruise vacations in the past two years were new to cruises—a 12% increase from the previous year. The cruise market is segmented by type—luxury, premium, and contemporary. Carnival is a contemporary cruise line. It’s more budget-friendly than its competitors, catering to a younger clientele. It’s also popular for family cruises—a growing segment.
Carnival is enjoying surging demand, with record booking volumes extending into 2025. Carnival's liquidity situation is becoming more favorable with improved cash flow from operations and substantial customer deposits. This trend appears resilient even in the face of inflation, as many view cruises as bucket-list experiences.
The company is investing in upgrading its offerings, including fleet-wide Starlink connectivity and high-profile entertainment, to maintain customer interest and competitiveness. While still carrying a significant debt load of about $30 billion, Carnival is actively working to reduce this burden, prioritizing the repayment of high-interest debt.
Is Carnival Set Up For Success?
Despite trading at a low price-to-sales ratio, Carnival's stock price already reflects much of its recovery. Future growth potential exists but may be tempered by the company's high debt levels. With a consensus Strong Buy rating, Wall Street analysts project an average upside of 26% for CCL stock over the next 12-18 months, with some estimates as high as 55%.
The cruise line is making steady progress in its recovery, with strong demand and improving financials. However, its high debt remains a concern. For investors willing to tolerate short-term volatility, Carnival could present an opportunity to buy at a discounted price, with the potential for long-term gains as the company continues its turnaround.
Neither Julie Stoller nor Stocks.News have positions in this company.
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Contributing Writer
As a professional writer since 2012, Julie Stoller has covered many industries, from healthcare and technology to consumer products and industrials. She has written about IPOs, spinoffs, ETFs, stock splits, commodities, legislative actions impacting investors, and macroeconomic issues. While keeping up with the latest meme stocks and trends, Julie's special interests are discovering ...