Is Carnival Stock a Buy on the Dip?

A prominent leisure stock continues to underperform, despite signs of a major business turnaround.

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One of the largest industries globally is travel services. It has a broad range of subsectors, including transportation, hotels, food service, tour operations, and car rentals. Transportation includes airlines, railways, and cruises, and large corporations are the major players in this subsector.

Carnival Corporation (NYSE:CCL) had a fantastic start to 2024, evidenced by record revenues and significantly lower net loss in the first quarter. But despite the glowing numbers, the share price declined 15.3% since the reporting date. As of this writing, the year-to-date loss is 21.47%.

Should investors buy on the dip or forget about this growth stock? Note that market analysts covering the stock recommend a buy rating. Their 12-month average price target is US$20.71, a 42.2% upside from the current share price of US$14.56.  

Pandemic nightmare  

Carnival’s 52-week high is US$19.74. The US$18.7 billion company owns a family of cruise lines, including the popular Carnival Cruise Line. Like the aviation industry, the novel coronavirus outbreak in 2020 was a nightmare for the cruise industry.

The leisure stock traded above US$50 at the start of 2020 until that fateful day on March 18. Its price plunged 81.66% to US$9.30, one week after the World Health Organization declared COVID-19 a global pandemic. Leisure travel, whether land, air or sea, screeched to a halt.

For fiscal 2020, Carnival lost US$10.2 billion. Still, then-president and chief executive officer (CEO), Arnold Donald, said, “2020 has proven to be a true testament to the resilience of our company. We took aggressive actions to implement and optimize a complete pause in our guest cruise operations across all brands globally.”

Furthermore, David Bernstein, chief financial officer of Carnival, said, “We ended the year with $9.5 billion in cash and have the liquidity in place to sustain ourselves throughout 2021, even in a zero-revenue environment.” Investors lost 56.9% overall for the year.

In the next three years, losses continued but on a diminishing basis. It dwindled from US$9.5 billion in fiscal 2021 to US$74 million. The stock gained 130% versus -59.9% and -7.1% in the previous years.

Recovery mode

Fiscal 2024 is a vast improvement and should be welcome news to investors expecting a major turnaround. In the first quarter (three months ended February 29, 2024, revenues rose 22% year over year to a record US$5.4 billion. Net loss thinned 69.1% to US$214 million compared to US$693 million in the first quarter of fiscal 2023.

“We delivered another strong quarter that outperformed guidance on every measure while concluding a monumental wave season that achieved all-time high booking volumes at considerably higher prices,” said Josh Weinstein, Carnival’s current CEO.

Weinstein said the quarterly result is a continuation of the strong demand across all Carnival brands. He added, “With much of this year on the books, we have even greater conviction in delivering record revenues and EBITDA [earnings before interest, taxes, depreciation, and amortization], along with a step change improvement in operating performance, and have begun turning more of our attention to delivering an even stronger 2025.”

Industry outlook

According to the Cruise Lines International Association, cruise continues to be one of the fastest-growing and most resilient sectors of tourism. It also offers the best vacation value. However, Carnival is not for practical, risk-averse investors. It would be wise to wait for the full recovery before sinking money into the leisure stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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