Carnival (CCL) Stock: Set to Cruise Backup (Rating Upgrade)

After reaching a double top near $20 at the end of 2023, carnival corporation & plc (New York Stock Exchange:CCL) is trending down, offering an opportunity to get back into cruise ship stocks.carnival is now Reposition the company as it enters a period of strong earnings and cash flow.my investment thesis It’s even more bullish now, with the stock back down to $14.

Back to big profits

Unlike other major cruise lines, Carnival has not yet reported huge profits. The company has reported losses for the past two quarters and has only had one quarterly profit since coronavirus shutdowns began in early 2020.

The entire investment story will change with the start of the upcoming August quarter.Carnival plans to report earnings of more than $1 per share each quarter, but the cruise line may only report more quarterly The company suffered a loss in the seasonally weak February quarter.

As stated in Previous researchCarnival has reported June, July, and August in its FQ3 quarter, packing its strongest three months into the same quarter, while other cruise lines have reported more consistent quarterly results for the last three quarters of the year. are distributed over these months with the aim of

Additionally, the cruise line just finished its wave season with record bookings, according to its CEO. 2024 1st quarter financial report:

Most importantly, we achieved record booking numbers at significantly higher prices. In fact, both our North American and European brands set booking records in the first quarter, with strong pricing across all core deployments and across all quarters.

With limited inventory remaining in the second quarter, prices rose by double digits. During the summer peak in the third quarter, the numbers were quite high. It was also significantly higher in the fourth quarter, further increasing its occupancy advantage.

Carnival is currently in a period where positive cash flow from debt repayments and lower interest expenses should boost profits. As an example, the company just retired its next lien debt at an interest rate of 9.875%. Q1 24 Generated $1.4 billion in free cash flow, driven by $1.8 billion in operating cash flow from surging pre-sales.

Total customer deposits reached $7 billion, an increase of $1.3 billion over the prior year. Q1 2023 level. These advances provide cruise lines with both a sign of strong demand and cash flow to begin paying down debt.

repay a debt

Carnival still has $28.5 billion in net debt, and the company is entering a phase where new ship deliveries are very low. The cruise company has already delivered two ships in FY24 and has only three more to deliver by the end of FY27.

Capital expenditures will be limited to $2.3 billion, $3.0 billion and $2.4 billion over the next three years, respectively. Carnival expects to generate $5.63 billion worth of adjusted EBITDA this year, which it says will provide cash flow to further reduce its debt burden.

A recent $1.8 billion debt repayment on nearly 10% of debt has already reduced interest expense by $180 million annually. Carnival just released its first quarter results, and net interest expense decreased from $483 million in the previous quarter to $438 million.

Consensus estimates call for EPS to jump from $1.00 in FY24 to $1.71 in FY26. Carnival will only need to cut its interest expense in half over the next few years to account for EPS growth, but the company predicts higher yields from its bookings.

The cruise company still has a long way to go to reach investment-grade debt, with its current leverage ratio at 5x. Current bookings and demand scenarios confirm that Carnival remains on a path to generating positive cash flow to repay debt and boost earnings by reducing interest expense.

Recent viking holdings (Vic) The IPO may have put pressure on Carnival. Raised through IPO 1.5 billion dollars, And Carnival was probably a source of funding for some investors.

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The key takeaway for investors is that Carnival is finally on track to returning to stable profits, even in a seasonally tough quarter. At $14, the stock is cheap, as the cruise line’s improved operations will boost profits, and paying down debt will further boost earnings.

Investors should take advantage of recent weakness to buy back Carnival stock.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.