Carnival Corp. (NYSE: CCL) has experienced a huge rebound since the pandemic. After shutdowns left it without a significant revenue source for over a year, massive debts and a long process of returning to normalcy left its stock without an obvious catalyst.
However, Carnival's ships are again packed, and bookings are at record highs. Such conditions should prompt investors to take a closer look at the cruise line stock.
The Carnival comeback
The good news for Carnival investors is that the company's recovery is so complete from an operational standpoint that, in many respects, it looks like the pandemic never happened. Booking volumes continue to achieve new records, as the cruise line has sold more than half of its cabins available in 2025 despite higher prices than the prior year.
Such a performance has helped it maintain its market leadership in the cruise industry. According to Cruise Market Watch, 43% of all cruise passengers sailed on a Carnival ship. That is far above Royal Caribbean at 26% or Norwegian Cruise Line Holdings at 9%.
Moreover, the pattern appears set to repeat for its 2026 bookings. That has prompted Carnival to set up a $3.4 billion credit facility to fund three additional ship deliveries through 2028.
However, debt levels are the one effect of the pandemic that remains visible. As of the end of the third quarter of fiscal 2024 (ended Aug. 31), the total debt stood at $29.6 billion, an admittedly tremendous burden for a company whose shareholders' equity is just $8.6 billion.
Nonetheless, this debt has fallen $1.7 billion in just the last nine months, and it has declined from $35.6 billion at the end of fiscal 2022.
This is important because, as of fiscal Q3, the current portion of its long-term debt was $2.2 billion. At the current repayment rate, Carnival can retire debt as it matures without having to refinance these obligations. This means it may only have to issue debt to add capacity, not to delay repayment of debts from the pandemic.
How it affected other financials
With the improving business conditions, it should not surprise anyone that Carnival's revenue for the first nine months of fiscal 2024 was $19 billion, an 18% increase from the same period in fiscal 2023.
Consequently, net income for the first three quarters of fiscal 2024 was $1.6 billion, an improvement from the $26 million loss in the same year-ago period. Slowing the growth of operating expenses to 10% yearly helped to return Carnival to profitability.
The company declined to offer specific guidance on revenue and earnings. Still, analysts forecast 16% revenue growth this fiscal year, so its financial improvements should remain on track. While they believe revenue growth will slow to 5% in fiscal 2025, a 29% increase in net income should keep improvements on track.
That may not be reflected by the stock's performance. Even though it has risen 170% since late 2022, the stock is still down slightly for the year in 2024. It is also trading 75% below its record high from 2018, so it is far from making a full recovery.
Nonetheless, valuations have fallen, and now investors can buy Carnival at 16 times earnings, its lowest price-to-earnings (P/E) ratio since the beginning of the pandemic. That gives prospective shareholders an additional reason to consider Carnival stock.
Investing in Carnival stock
Carnival stock is offering investors an opportune buy point at current levels.
Indeed, the stock is still 75% below all-time highs, and the coming slowdown in revenue growth may concern investors as it reaches a more sustainable growth rate.
However, investors should not dismiss the virtuous cycle bolstering Carnival and its stock. It has recovered to the point that it can retire its massive debts as they come due. Carnival is also capable of building more ships to address the high demand for cruises, a factor that should increase profits and share prices over time.
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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.
Why Carnival Stock Is Now a Buy was originally published by The Motley Fool