Carnival Corporation & plc (CCL - Get Rating) reported its fourth-quarter results on December 21, surpassing the consensus EPS and revenue estimates. In this piece, I have discussed why it could be prudent to wait for a better entry point in the stock despite its better-than-expected results.

For the quarter, CCL’s loss per share came 44.7% lower than the consensus estimate, and its revenue was 2.3% higher than analyst estimates. The company has a solid earnings history, as it surpassed the consensus EPS estimates in each of the trailing four quarters.

Its booking volumes for the two weeks around Black Friday and Cyber Monday reached an all-time high for that period. Its total customer deposits in the fourth quarter reached a record of $6.4 billion, beating the previous fourth quarter’s record of $5.10 billion. The company’s full-year revenues reached an all-time high of $21.60 billion.

CCL reduced its debt balance by $4.6 billion from its peak in the first quarter of 2023 and ended the year with $5.4 billion of liquidity. Passenger cruise days (PCDs) in the fourth quarter rose 29% year-over-year to 23.60 million, and occupancy percentage was 101%, compared to 85% in the year-ago quarter. ALBDs increased 7.9% year-over-year to 23.20 million.

CCL’s CEO, Josh Weinstein, said, “We ended the year on a high note with another record-breaking quarter that exceeded expectations and achieved positive full-year adjusted net income. In fact, we consistently outperformed in all four quarters of the year, buoyed by a strengthening demand environment across all our brands.”

“Thanks to a strong second half of 2023, we are already tracking ahead of our plan to achieve SEA Change, our three-year financial targets calling for the highest adjusted ROIC and adjusted EBITDA per ALBD in nearly two decades,” he added.

The company expects its adjusted EBITDA for the first quarter to more than double year-over-year to $0.80 billion. Its net yields (constant currency) in the first quarter are expected to rise approximately 16.5% year-over-year. Similarly, its fiscal 2024 adjusted EBITDA is expected to be $5.6 billion, growing 30% over 2023.

Its net yields (constant currency) are expected to go up approximately 8.5% compared to last year, with full-year occupancy returning to historical levels. Adjusted cruise costs, excluding fuel per ALBD (in constant currency) in the first quarter, are expected to increase 9.5% compared to the prior-year quarter. Similarly, its adjusted cruise costs, excluding fuel per ALBD (in constant current) in fiscal 2024, are expected to rise 4.5% over 2023.

Weinstein noted, “Based on our 2024 guidance, we expect to deliver another big step forward, positioning us more than halfway toward realizing all our 2026 SEA Change targets. With nearly two-thirds of 2024 on the books already, we are well positioned to obtain another year of record revenues and adjusted EBITDA.”

CCL’s stock has gained 130% year-to-date and 141.7% over the past year to close the last trading session at $18.54.

Here’s what could influence CCL’s performance in the upcoming months:

Mixed Financials

CCL’s revenues for the fourth quarter ended November 30, 2023, increased 40.6% over the prior-year quarter to $5.40 billion. Its operating income came in at $384 million, compared to an operating loss of $1.14 billion in the prior year quarter. The company’s adjusted EBITDA came in at $946 million, compared to an adjusted EBITDA loss of $96 million in the year-ago quarter.

On the other hand, its adjusted net loss narrowed 91.6% year-over-year to $90 million. Also, its adjusted loss per share narrowed 91.8% year-over-year to $0.07.

Favorable Analyst Estimates

Analysts expect CCL’s EPS for fiscal 2024 to come in at $0.99. Its revenue for fiscal 2024 is expected to increase 13.6% year-over-year to $24.54 billion. Its EPS and revenue for fiscal 2025 are expected to increase 35.9% and 4.4% year-over-year to $1.34 and $25.61 billion, respectively.

Mixed Valuation

In terms of forward non-GAAP P/E, CCL’s 18.82x is 15.6% higher than the 16.29x industry average. Its 2.15x forward EV/Sales is 68.7% higher than the 1.27x industry average. Likewise, its 17.01x forward EV/EBIT is 18.1% higher than the 14.41x industry average.

On the other hand, in terms of forward EV/EBITDA, CCL’s 9.30x is 8.4% lower than the 10.15x industry average.

Mixed Profitability

In terms of the trailing-12-month gross profit margin, CCL’s 49.56% is 39.7% higher than the 35.47% industry average. Likewise, its 9.06% trailing-12-month EBIT margin is 19.5% higher than the industry average of 7.58%. Furthermore, the stock’s 17.55% trailing-12-month Capex/Sales is 477.8% higher than the industry average of 3.04%.

On the other hand, CCL’s trailing-12-month net income margin is negative 0.34% compared to the 4.52% industry average. Likewise, its trailing-12-month Return on Common Equity is negative 1.06% compared to the 11.40% industry average. Furthermore, the stock’s 0.43x trailing-12-month asset turnover ratio is 56.9% lower than the industry average of 0.99x.

POWR Ratings Reflect Uncertainty

CCL has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CCL has a C grade for Value, consistent with its mixed valuation.

It has a C grade for Quality, which is in sync with its mixed profitability.

CCL is ranked #3 out of 4 stocks in the Travel – Cruises industry. Click here to access CCL’s Growth, Momentum, Stability, and Sentiment ratings.

Bottom Line

CCL reported strong growth in revenue for the fourth quarter, and its loss came below analysts’ expectations. The company is benefitting from the massive demand for travel post-pandemic. However, inflation and high-interest rates may affect its profitability.

Given its mixed financials, valuation, and profitability, it could be wise to wait for a better entry point in the stock.

How Does Carnival Corporation & plc (CCL) Stack Up Against Other Travel Stocks?

CCL has an overall POWR Rating of C, equating to a Neutral rating. You may check out the stocks within the Travel – Hotels/Resorts industry possessing an A (Strong Buy) or B (Buy) rating: Genting Berhad (GEBHY - Get Rating), Bluegreen Vacations Holding Corporation (BVH - Get Rating), and Atour Lifestyle Holdings Limited (ATAT - Get Rating).

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

CCL shares were trading at $18.63 per share on Thursday morning, up $0.09 (+0.49%). Year-to-date, CCL has gained 131.14%, versus a 26.65% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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