Should Investors Consider Buying, Selling, or Holding Carnival Shares in 2025?
Shares of Carnival (CCL -2.26%) have surged an astounding 92% this year due to a series of better-than-expected quarterly earnings. This cruise giant, amidst pandemic disruptions, has transformed strong booking activity and higher pricing into a financially triumphant comeback story.
Investors are having a blast with the stock reaching its 52-week high. But, is this ship still ready to deliver positive returns?
Let's ponder over what to do with Carnival stocks heading into 2025.
Why Consider Buying or Holding Carnival Stocks Now
The cruise industry is experiencing a renaissance, making this mode of travel and leisure more popular than ever before. More individuals are indulging in cruises for the first time, traveling frequently, and even willing to pay premium prices for their dream vacations.
Carnival has seized this opportunity, pouring significant funds into expanding its capacity, smashing pre-pandemic records this year. In the last reported third quarter (ending Sept. 30), Carnival boasted $6.8 billion in customer deposits for future cruises, an impressive $500 million increase from the previous year and a 39% surge compared to Q3 2019.
The attention-grabbing metric is Carnival's guidance for 2024 net yield, a fancy term indicative of the average revenue per capacity per day. While the per-day adjusted cruise cost increases by only 3.4%, the net yield is projected to swell by 10.4%, highlighting the company's skillful hike in prices while managing expenses.
Investing in modernizing the fleet with larger and more high-end ships has translated into a more luxurious product, resulting in enhanced profitability margins.
Carnival forecasts a 2024 adjusted EBITDA of $6 billion, a substantial 40% increase from 2023. The projected full-year adjusted earnings per share of $1.33 marks a significant conversion from the $0 result in 2023, signaling a return to consistent positivity.
Management is optimistic about 2025, anticipating that the "Celebration Key" – Carnival's newest, resort-style Caribbean destination – will contribute higher yields.
Investors convinced that Carnival is in the early stages of a substantial long-term expansion have a strong reason to invest in the stock, expecting further upward momentum.
Should You Sell Carnival Stocks Now?
Despite Carnival's optimistic trajectory, it's essential to analyze it critically and consider potential setbacks.
The primary challenge Carnival stock faces today is that 2024's strong performance leaves high expectations for 2025. Even with positive outlooks for 2025 sailings, the market's focus may shift towards uncertainties in future trends.
The cruise industry retains a highly competitive landscape, with companies such as Royal Caribbean and Norwegian Cruise Lines aggressively pursuing market share at various price points and audience demographics.
Adding capacity to the industry can test Carnival's pricing power and potentially slow down earnings during new promotional periods. Macroeconomic circumstances like a deteriorating labor market and downward trend in consumer spending also pose threats to Carnival's performance.
Investors thinking that Carnival may encounter stormy waters and need to disembark may find a compelling reason to sell the stock now.
Making a Decision on Carnival Stocks
In my opinion, Carnival remains an attractive buy, with a high likelihood that its share price will continue to rise by this time next year.
I am drawn to the stock's captivating valuation, currently trading at 9.4 times its 2024 consensus EBITDA - an enterprise-value-to-forward-EBITDA ratio. Notably, this level discounts Carnival compared to Norwegian at 9.8 and Royal Caribbean at 13.1.
In my perspective, Carnival's shares continue to present an attractive value proposition with potential for further valuation expansion as its financial performance continues to improve.
The data demonstrates that Carnival has found the ideal balance to sustain profitable growth and is now well-equipped to reward its shareholders. For investors with a long-term perspective, Carnival shares can serve as an ideal addition to a diversified portfolio.
Considering the strong financial performance and growth potential of Carnival, many investors might be thinking about investing more money in the company. With the cruise industry showing signs of a renaissance and Carnival's strategic expansion plans, the company's net yield and earnings are projected to significantly increase in the coming years.
On the other hand, investors should be aware of potential challenges, such as high expectations for future performance, intense competition in the industry, and macroeconomic risks that could impact Carnival's earnings. Analyzing these factors carefully before making a decision is crucial when it comes to investing or selling Carnival stocks.
