If you’ve been sitting on the fence, now might a great time to take the leap.
As we get into the last quarter of a stunning year full of records and rebounds, Carnival (CCL 7.05%) (CUK 8.03%) stock is roughly flat year to date. But that’s not likely to last. There are a lot of good things happening now at the cruise line operator, and the problems might start to sort themselves out quickly. Here are three reasons to buy Carnival stock before the year runs out.
1. Business is at record levels
Carnival continues to report record quarter after record quarter. In its fiscal third quarter (ended Aug. 31), the company reported third-quarter records for:
- Revenue of $7.9 billion, up 14% over last year
- Operating income of $2.2 billion, up 34% over last year
- Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $2.8 billion, up 25% over last year
- Total customer deposits of $6.8 billion
- Net yields and per diems, cruise-specific metrics
2025 is already booked out at high levels with low inventory remaining at (again) record ticket prices. 2026 is also starting to book out at record levels, and the company is maneuvering its large fleet to meet demand. It rebranded some ships to capture high demand for certain lines and is bringing new ships onboard to manage increasing interest over time.
Carnival has three new ships scheduled for delivery through 2028, with the goal of one or two per year. It’s on the low side for the next few years, so the company can manage costs effectively while still benefiting from growing demand.
It also recently ordered three new ships — which will be the company’s largest ever — for delivery in 2029, 2031, and 2033, but that’s a long way off from now. Carnival is positioning itself to maintain its spot as the largest global cruise operator and keep posting new records.
2. Lower interest rates could give it another boost
In the near term, Carnival is stuck with a huge debt load while working hard to generate enough cash to pay it back and still operate from a point of growth. It’s been managing effectively, paying off its highest-interest-rate loans and increasing its credit facility to keep a financially solid position. It ended the third quarter with $28.6 billion in total long-term debt and $4.5 billion in cash and equivalents.
Lower interest rates will help Carnival in two important ways. The first is that it should be able to refinance some of its loans at better rates, leading to lower interest payments and more money available to invest in the company. It can also pay back its principal faster.
The second way lower interest rates can positively impact Carnival is to boost the economy and overall spending. Although Carnival has been boasting incredible performance, many people have been holding back on purchasing high-cost items. As inflation moderates and interest rates come down, more people will go back to spending on larger, expensive items.
With lower debt and strong results, Carnival stock should begin to look more appealing to investors.
3. It’s still cheap
Since Carnival stock hasn’t moved while its revenue and profits have soared, the valuation has remained low. It’s trading at a price-to-sales ratio of less than 1 and a forward price-to-earnings ratio (P/E) of under 11. That’s a dirt cheap valuation.
If the market is giving it this low price, it isn’t sensing the potential right now. So how do you know if it’s a bargain or a value trap?
On one hand, the high debt puts Carnival at risk because it has to generate lots of cash to pay it off, and there’s the possibility of demand petering out before it can finish. On the other hand, Carnival continues to demonstrate that it’s relevant, investing in its products and keeping demand high.
The effects of lower interest rates could show up in its financials pretty soon, pumping new growth into the business. It isn’t for the highly risk-averse investor, but Carnival stock should begin to climb again, and 2025 could look a lot better than 2024.
