Can Carnival Cruise Lines Set Sail For New Highs?

Carnival Cruise Lines (NYSE: CCL) has been weathering stormy seas for the last 2 years, but the skies are clearing, and smoother sailing is ahead. The headwinds are not over, but signs within the Q1 earnings report point to a return to normalcy that includes positive cash flow and debt reduction. What this means for investors is a chance to buy this stock at the lowest prices it has seen in 20 years and at an 80% discount to its prepandemic price point. 

The Bad Times Are Behind Carnival Cruise Lines 

The signal in the results is the debt balance. The company has been leaning hard into debt to sustain operations and lure clientele back on board, and the debt balance has ballooned. Cash from ops and adjusted EBITDA turned positive in Q1, which is a favorable sign that debt will no longer be needed, and that debt reduction can begin. The company’s load is roughly $32 billion, so it will take a while to pay back, but its financial health will be improving. As it is now, Carnival Cruise Line is sitting on over $8.1 billion in liquidity, including $5.45 billion in cash, so it appears to be well-capitalized for operations. 

“With adjusted free cash flow for the year expected to be positive, our revolver renewal behind us, more committed export credit financings in hand, a reduced capex profile going forward and over $8 billion of liquidity, we believe we are well positioned to pay down near term debt maturities from excess liquidity and therefore have no intention to sell equity (except in connection with our advantageous and non-dilutive stock swap program),” said CEO Josh Weinstein. 

Some details supporting the outlook include Q1 bookings, Q1 deposits, the occupancy forecast, and lead times. The company reported a record number of Q1 bookings, driving a record level of deposits. Deposits are up 16% above the old record and point to 100% occupancy rates on board ships, a key driver of onboard spending and margin.

"We are well booked for the remainder of the year at higher prices (normalized for FCCs), which coupled with continued strength in onboard revenue, supports our improving outlook for the remainder of the year. We expect the extension of booking lead times, combined with our investment in advertising, to position us even better in 2024 and beyond,” concluded Weinstein. 

Sell-Siders See Upside For Carnival Cruise Lines 

The analysts have yet to come out with commentary following the Q1 results, but their sentiment ahead of the report was favorable relative to the current share price. The analyst rated the stock a Hold with a price target down compared to last year but firm in the near-term and still 25% above the price action. Assuming the analysts see positivity in the details and outlook, this could be the bottom for the sentiment and price target. This is compounded by increased institutional activity, with the institutions adding to their positions. Their buying is not robust but may begin to pick up momentum now that Q1 results are in the bag. 

The Technical Outlook: Carnival Cruise Lines, The Tide Is Turning

It may take some time to get this vessel pointed in a different direction, but the tide is turning for Carnival Cruise Lines. The stock is trading at a long-term low and a significant support level with an improving outlook for profitability. Assuming the Q2 and Q3 results are as expected and include debt reduction, this stock could increase within its range to retest higher levels. If the analysts get on board, it could do it quickly.