Carnival Stock: A Closer Look at the Numbers
Carnival Corporation & plc (NYSE:CCL) has been making headlines lately with its impressive rally since hitting rock bottom in December 2022. But is the stock really a good investment option? Let’s dive into the numbers and analyze the situation.
Firstly, let’s talk about CCL’s recent financial performance. In the second quarter of 2023, the cruise liner recorded strong revenues of $4.91 billion, representing a significant increase compared to the previous quarter and the same period last year. However, operating expenses also rose, putting some pressure on the company’s bottom line. Additionally, CCL’s interest expenses have been on the rise due to its long-term debts, which reached $31.92 billion, a significant increase compared to 2019 levels.
Looking at cash flow, CCL’s free cash flow generation has been lackluster, despite a positive increase compared to the previous quarter and the same period last year. This can be attributed to the company’s growing capital expenditure as it continues to invest in new fleets, which are expected to be delivered through 2025. As a result, CCL’s balance sheet is currently not in the best shape, with relatively low cash and short-term investments.
To manage its debt obligations, CCL may need to draw down its revolving credit agreement, potentially leading to higher interest expenses in the near term. However, the management has assured investors that there will be no share dilution from a capital raise in the future.
On the positive side, CCL has seen a surge in pre-booked trips, resulting in total customer deposits of $7.2 billion. The management has also provided promising guidance, projecting a 100% occupancy rate in FY2023. This, coupled with the company’s improved cancellation policy, suggests that CCL’s top and bottom-line expansion may be on the right track, at least for the time being.
That said, there are some challenges on the horizon. With the Federal Reserve planning two more rate hikes in 2023 and a potentially slower fight towards a 2% inflation rate, discretionary spending may tighten in the coming years. This could put further pressure on CCL’s profitability, especially considering its elevated interest rate environment.
Looking at CCL’s historical performance, it becomes evident that the stock has underperformed compared to its peers. Over the past five years, CCL’s stock returns have been significantly negative, unlike Royal Caribbean Cruises (NYSE:RCL) and the SPY. The same trend applies to the past ten years, with CCL generating negative returns while RCL and SPY have performed much better.
Considering all of the above, it is safe to say that CCL is neither a high-growth stock nor an income stock. While the recent rally may seem appealing to long-term shareholders who have been dollar-cost-averaging, it is advisable for new investors to think twice before adding CCL to their portfolios.
In conclusion, while there are certainly some positive aspects to Carnival Corporation & plc’s recent performance, such as strong revenues and customer deposits, there are also challenges to consider. The company’s debt levels, interest expenses, and underwhelming past performance should give investors pause. With the uncertain economic environment ahead, it is essential to carefully assess risk levels before making any investment decisions.
