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Here's Why Investors Should Retain Carnival (CCL) Stock Now

Shares of Carnival Corporation & plc CCL have rallied 42.5% in the past year compared with the industry’s 11% growth. The uptrend can be attributed to improved booking trends, courtesy of solid demand and increased advertising activities. Also, focus on strategic investments and fleet expansion bode well.

The Zacks Consensus Estimate for this Zacks Rank #3 (Hold) company’s fiscal 2025 earnings per share (EPS) is pegged at $1.44, indicating 41.7% growth from the prior year’s reported levels. The earnings estimate for second-quarter fiscal 2024 suggests 96.8% growth from the year-ago reported figure. CCL delivered a trailing four-quarter earnings surprise of 21.9%, on average.

However, the prospects of Carnival are hindered by increased operating costs and expenses.

Let us discuss why investors should retain the stock for the time being.

Key Growth Drivers

Zacks Investment Research
Zacks Investment Research


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Carnival gains from solid booking momentum. In the first fiscal quarter, the company announced strong bookings for its NAA and Europe segments, with booking levels notably higher than the previous year’s levels. Despite limited inventory, booking volumes reached unprecedented levels, courtesy of solid demand for future sailings (beyond 2025). The surge in demand led to increased prices and a longer booking window. The company reported a solid booked position for the remainder of the year, with pricing and occupancy significantly higher than 2023 levels.

The company highlights concerted efforts to elevate consideration and stimulate widespread demand for cruise travel across diverse source markets. As a result, the company is attracting more new guests, complemented by a growing base of repeat customers, fostering heightened overall demand and sustainable revenue growth, thereby boosting the bottom line. The company's brands continue to progress the booking curve in alignment with its yield management strategy, prioritizing base load bookings to bolster long-term increases in pricing throughout the booking process.

CCL’s strategic investment in advertising is yielding significant returns, stimulating demand across its portfolio with the launch of several new campaigns during the peak season. During the fiscal first quarter, the company reported increased web traffic and successful campaigns in key markets such as Alaska and Europe. In Europe, new marketing initiatives for major brands like AIDA, P&O Cruises and Costa have bolstered brand awareness and contributed to the overall strength of the European portfolio. The sight of their European brands flourishing across their core European deployments is particularly gratifying, serving as a testament to the robustness of the portfolio.

Carnival focuses on fleet expansion to drive growth. The company is actively pursuing additional initiatives to sustain its momentum and tap into untapped revenue opportunities. Three new ships are in development, poised to generate heightened interest and demand for their respective brands. This includes Carnival Jubilee (Carnival Cruise Line's third Excel-class ship), Sun Princess and Queen Anne (a new flagship for Cunard).

Also, the company emphasizes investments toward enhancing the existing fleet, such as the AIDA evolution program. The planned improvements aim to elevate the guest experience significantly, resulting in a substantial revenue boost across the brand while simultaneously reducing its environmental impact and enhancing the performance.

Concerns

Carnival has been bearing the brunt of high expenses for quite some time. During the fiscal first quarter, operating costs and expenses increased 12% year over year to $3.7 billion. Several factors drove this uptick, including a 4.2% capacity rise in Available Lower Berth Days (ALBDs), elevated commissions, transportation costs and other expenses linked to higher ticket pricing and increased guest numbers. Additionally, higher onboard revenues led to a $43 million increase in onboard and other cost of sales, while repair and maintenance expenses, including dry-dock costs, rose by $30 million. Furthermore, a net unfavorable foreign currency translational impact and increased port expenses each contributed $25 million to the overall rise in expenses.

For second-quarter fiscal 2024, it expects adjusted cruise costs excluding fuel per ALBD (in constant currency) to increase approximately 3% year over year. The increase includes an unfavorable impact of 1.3 percentage points attributed to lower ALBDs resulting from the Red Sea rerouting, as certain ships repositioned without guests.

Zacks Rank & Key Picks

Carnival currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Consumer Discretionary sector are as follows:

Trip.com Group Limited TCOM sports a Zacks Rank #1 (Strong Buy). TCOM has a trailing four-quarter earnings surprise of 53.1%, on average. Shares of TCOM have gained 33.2% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for TCOM’s 2024 sales and EPS indicates a rise of 18.2% and 8%, respectively, from the year-ago levels.

Royal Caribbean Cruises Ltd. RCL currently carries a Zacks Rank #2 (Buy). RCL has a trailing four-quarter earnings surprise of 26.4%, on average. Shares of RCL have surged 100.4% in the past year.

The Zacks Consensus Estimate for RCL’s 2024 sales and EPS indicates a rise of 14.7% and 47.9%, respectively, from the year-ago levels.

Hyatt Hotels Corporation H carries a Zacks Rank #2 at present. It has a trailing four-quarter earnings surprise of 17.8%, on average. Shares of H have rallied 31.8% in the past year.

The Zacks Consensus Estimate for H’s 2024 sales and EPS indicates a rise of 3.5% and 27%, respectively, from the year-ago levels.

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Carnival Corporation (CCL) : Free Stock Analysis Report

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