Carnival Shares Jump on Raised Guidance. Is It Too Late to Buy the Stock?

Share prices of Carnival (NYSE: CCL) propelled higher this week after the cruise ship operator reported strong quarterly results and raised its full-year guidance. Despite the jump following its earnings report release on Tuesday, the stock is about where it was when it started the year.

Let's look at the company's most recent results and whether it is too late to buy Carnival stock after its most recent upward move.

Carnival posted strong results and increased guidance

For its fiscal 2024 second quarter ended in May, Carnival saw its revenue climb 18% year over year to $5.8 billion. Ticket revenue rose nearly 20% year over year to $3.8 billion, while onboard revenue rose 15% to $2 billion. Operating income rose to $560 million from $120 million a year ago, while adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) climbed over 75% to $1.2 billion. Adjusted earnings per share (EPS) turned positive, coming in at $0.11.

The company said total deposits reached a record $8.3 billion, while cumulative bookings for the rest of 2024 were the best on record with 2025 looking set to surpass 2024.

One important metric analysts look at in the cruise space is net revenue yield, which is total revenue per average lower berth day (ALBD) less agent commissions, cost of air and other transportation, and other costs. ALBD multiplies capacity, assuming a cabin holds two people, by the ships' revenue-producing operating days. Much like same-store sales for retailers, the net revenue yield metric tries to give investors an idea of how revenue is performing on a more apples-to-apples basis and not just through additional ships or more operating days (or in the case of retailers, more stores). On that front, Carnival saw its net yield rise 12% year over year.

Looking ahead, the company raised its full-year guidance. It now expects adjusted net income of $1.55 billion (compared to a prior forecast of approximately $1.275 billion) and adjusted EBITDA of $5.83 billion (versus a previous outlook of $5.63 billion). It is looking for its net revenue yield to be up 10.25% compared to prior guidance of a 9.5% increase.

This was a very strong report from Carnival, but its upbeat outlook was even more reason to get excited, as it's seeing demand and occupancy grow while also being able to increase prices. With the company also able to keep costs in check, it is seeing improved profitability. This is one of the best environments to be in for cruise ship operators.

Importantly, the company is also generating solid free cash flow. It reported adjusted free cash flow of $1.3 billion in the quarter and $2.7 billion for the first half of its fiscal year. With $27.7 billion in net debt on its balance sheet, generating cash flow and lowering that debt will be important.

The Carnival Elation cruise ship sits in dock with a resort beach in the foreground of the image.

Is it time to buy Carnival stock?

Carnival's stock has bounced nicely off its lows, and the company is seeing a lot of strong momentum at the moment. From a valuation perspective, the company trades at a forward price-to-earnings (P/E) ratio of about 17 and a forward enterprise value (EV)-to-EBITDA multiple of about 9. Given the debt on the company's balance sheet, and the capital expenditures (capex) and depreciation associated with the industry, I prefer using the latter metric when looking at the stock. On that front, the stock trades in line with rival Norwegian Cruise Line (NYSE: NCLH) and at a discount to Royal Caribbean (NYSE: RCL).

CCL PE Ratio (Forward)

The company carries a fair amount of leverage (net debt/EBITDA), which would be about 4.8 times based on its fiscal-year EBITDA guidance. However, with the combination of continued strong free cash flow and increasing EBITDA, the company could get that number to a more reasonable 3 times by the end of its fiscal 2025.

That deleveraging combined with the momentum the company is seeing with bookings and price growth makes the stock look attractive at current levels despite its recent jump in price. That said, given its debt load, the stock does carry risk, so size positions accordingly.

Should you invest $1,000 in Carnival Corp. right now?

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.