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carnival (CCL -0.70%) (CUK -0.59%) is back in business and the stock is back in a position to outperform the market in 2023. He ended the year with a 130% increase, a significant increase over the same period last year. S&P500increased by 24%. All systems are going, but can Carnival replicate his 2024? Probably not, as the magnitude of the rebound is already so large. But you may want to buy the stock anyway. If you’re considering buying Carnival stock, let’s take a look at why this is the most important thing to know.
carnival is back
Carnival is the world’s largest cruise company and has been a market leader for many years. We run an efficient and popular business in a niche industry targeting wealthy people.
None of that mattered when a global pandemic forced travelers to hit the pause button on cruises for months. Carnival managed to stay afloat by raising debt and equity capital when sales were slow. But now that is long gone.
There’s all kinds of evidence that Carnival is coming back to life and experiencing significant growth as people sign up for its popular cruises. The segment is growing despite inflation as customers spend more on travel and experiences due to lockdowns. If inflation slows, it should rise further. Carnival’s leading position in the cruise industry allows it to benefit from favorable trends.
2023 was a year of recovery
Investors began loading into Carnival stock in early 2023. The overall market rebound was fueled by confidence in the economic recovery, or at least by investors tired of market declines. This trend was further confirmed by the positive trends in economic indicators and, in the case of Carnival, by the phenomenal performance.
Revenue for fiscal year 2023 (ending Nov. 30) increased 44% year-over-year to a record $21.6 billion. Net loss was $74 million, but the company posted a profit of more than $1 billion in its fiscal third quarter. Adjusted net income, which adjusts for impairment losses and restructuring costs, was $1 million for the year. Adjusted free cash flow was $2.1 billion.
Carnival has also made significant progress in paying off debt. Debt totaled more than $40 billion at its peak, but the company paid off $6 billion in 2023. The company has $5.4 billion in liquidity and plans to use increased operating cash to pay down debt. Operating cash in 2023 was $4.3 billion, so although the company still has a lot of debt, it is in a solid position to continue operating and repay its debt over the long term.
In the face of the pandemic, Carnival’s debt reached about $10 billion. That’s not uncommon in large, established companies. So, I don’t mean to downplay the increased debt, but the new portion is about $30 billion, and repaying another $20 billion or so will bring it down to pre-pandemic levels. With strong growth drivers and good management, Carnival doesn’t seem to have any trouble paying back and improving its financial position. There’s always a risk that something will go wrong, but pandemics don’t happen every day.
2024 will be different
That’s why the most important thing investors need to know about Carnival stock right now is that the recovery is over and an extreme rally is occurring. I think Carnival stock is unlikely to rise another 130% in his 2024. Investors who bet on a recovery have been handsomely rewarded, but that phase is over.
What is likely to happen this year? Customer deposits in the fourth quarter of 2023 were $6.4 billion, a record for the fourth quarter. So we already know it’s going to be a strong year for Carnival. Management is also giving investors tips based on the guidance. The company expects adjusted earnings before interest, taxes, depreciation and amortization to increase 30% year over year in 2024, and net yield, another earnings measure, to increase 8.5%. It also provides a guide to occupancy on a historical level. In other words, it’s back on track to operating at pre-pandemic levels.
Does that mean you shouldn’t invest in Carnival stock right now? On the contrary, I think it’s a great time to invest in Carnival stock. Carnival is well-positioned to continue to grow, pay down debt, and provide a great experience for our customers. Even if returns in 2024 are lower than in 2023, it should be a great long-term stock to hold for many years.
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