1 Magnificent Travel Stock Down Double Digits to Buy on the Dip as the Next Cruise Cycle Takes Off
Key Points
The recent pullback in Carnival stock makes it a compelling buying opportunity.
Carnival's recent reinstatement of its dividend and last month's initiated buyback are two signs that it's past the pandemic setback.
With a streak of 11 quarters of bottom-line beats, momentum is on its side.
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The world's largest cruise line operator by revenue is taking on some water lately. Despite the market's recent rally, shares of Carnival Corp. (NYSE: CCL) have fallen 19% since peaking two months ago. Zoom out to pre-pandemic times, and Carnival is trading 63% below the all-time high it notched in 2018.
It doesn't seem right. Trailing revenue of $27 billion is 54% ahead of where it was when the stock reached its high-water mark eight years ago. Net income has risen 19% in that time, though it is down 38% on a per-share basis, given all of the stock that Carnival and its peers had to issue to stay afloat during the prolonged COVID-19 shutdown. That doesn't diminish how historically cheap the cruise line's stock has become.
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Image source: Getty Images.
A ship off the old block
Rising fuel costs and the war in Iran may be weighing on Carnival's near-term momentum, but the long-term bullish thesis for Carnival stock investors remains largely intact. Coming out of its fiscal first quarter that ended in February, bookings for this year were up in the double-digits from where they were a year earlier.
After flooding the market with fresh shares following the pandemic, Carnival initiated a $2.5 billion share buyback last month. It also recently reinstated its quarterly dividend, yielding a respectable 2.2% in today's market.
There's also an impressive track record of landing ahead of Wall Street profit targets since returning to normal operations a couple of years ago. Let's compare expectations to reality over the past nearly three years.
| Period | EPS Estimate | Actual EPS | Surprise |
|---|---|---|---|
| Fiscal Q3 2023 | $0.75 | $0.86 | 15% |
| Fiscal Q4 2023 | ($0.13) | ($0.07) | 46% |
| Fiscal Q1 2024 | ($0.18) | ($0.14) | 22% |
| Fiscal Q2 2024 | ($0.02) | $0.11 | 650% |
| Fiscal Q3 2024 | $1.15 | $1.27 | 10% |
| Fiscal Q4 2024 | $0.07 | $0.14 | 94% |
| Fiscal Q1 2025 | $0.02 | $0.13 | 485% |
| Fiscal Q2 2025 | $0.35 | $0.24 | 46% |
| Fiscal Q3 2025 | $1.32 | $1.43 | 9% |
| Fiscal Q4 2025 | $0.25 | $0.34 | 39% |
| Fiscal Q1 2026 | $0.18 | $0.20 | 9% |
Data source: Yahoo! Finance. EPS = earnings per share ( adjusted ).
Carnival has beaten analyst earnings estimates by 9% or better for 11 consecutive quarters. This is significant because the stock is cheaper than you think. Even with rising fuel costs whittling down those market projections, Carnival is trading for just 12 times this fiscal year's earnings estimate and 10 times next year's bottom-line forecast.
That's a big discount to the overall market's multiples. It's also jarring when you consider its long track record of exceeding expectations. If 11 straight quarters of beats become 15 quarters a year from now, how high will earnings be? How low will the multiple be?
The bullish case that's taking on water may outright capsize if fuel costs keep climbing and folks feel unsafe on the high seas. Carnival can't change the macro, but it's a bargain if it can keep steering in the right direction.
Should you buy stock in Carnival Corp. right now?
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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.
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