A Remarkable Rebound for the Cruise Line Industry
In a year full of surprises, investors in Carnival Corp (CCL -1.13%) have had plenty to celebrate. With shares skyrocketing by an impressive 131%, it has been a profitable period for the world’s largest cruise line operator. The industry, which faced unprecedented challenges due to the COVID-19 crisis, is finally showing signs of a complete recovery. Major operators are reporting robust profitability, and bookings for future sailings have surpassed pre-pandemic records.
A Strong Fiscal Performance
Carnival Corp reported record-breaking revenue of $6.9 billion in its most recent quarter, three months ago. More significantly, it also achieved its first profitable quarter since fiscal year 2019, effectively ending a streak of 14 consecutive quarterly losses. Industry analysts are currently projecting a loss of $0.13 per share on $5.3 billion in revenue for Carnival’s upcoming fiscal fourth quarter, set to be revealed on Thursday.
The Importance of Seasonal Factors
To fully understand Carnival’s performance during the discussed three-month period ending in November, it is crucial to account for the distinction from its exceptional performance in the preceding three months, ending in August. Summer is the peak season for family vacations. This period sees an influx of travel, as families take advantage of school breaks and the warm weather to embark on tropical getaways and explore tourist destinations along coastlines. Comparing the upcoming fiscal fourth quarter to Carnival’s position a year ago, the outlook appears considerably more favorable. In the final frame of fiscal year 2022, Carnival faced a deficit amounting to $0.85 per share. The projected $5.3 billion in revenue for this quarter marks a remarkable 38% year-over-year improvement. Encouragingly, market momentum suggests the actual results may exceed expectations. Carnival has consistently surpassed analyst earnings estimates over the past year, with the gap between projected and actual earnings widening. Although all 14 major firms providing projections anticipate a loss of at least $0.10 per share, the possibility of positive net income cannot be dismissed. Occupancy levels are on the rise, and fuel costs, a significant expense for cruise liners, have been decreasing in recent months.
Revised Price Targets and Analyst Confidence
Over the past four trading days, three analysts have revisited and increased their price targets for Carnival shares. Andrew Didora at Bank of America, for instance, raised his target from $20 to $22 just as this week kicked off. Similarly, analysts at J.P. Morgan and Barclays raised their price targets by $2 late last week. Despite the challenges faced by the cruising market during the shutdown, cruise lines, including Carnival, have taken significant steps towards financial stability. While it may take time for per-share profitability to reach previous highs, Carnival has already reduced its debt by $4 billion since its peak earlier this year. Trading at 20 times the projected earnings for the new fiscal year and 14 times next year’s target, Carnival’s shares have enjoyed considerable gains throughout the current year. With another potentially exceptional performance expected on Thursday, these gains may continue to accumulate.