Investors should judge Carnival Corporation(NYSE:CCL) stock based on revenue, debt, and industry importance. Those factors should lead to the conclusion that Carnival should be moving upward in 2022.
That seems to be the conclusion that Wall Street is taking for the most part. On the one hand, 10 analysts have given CCL stock a ‘hold’ rating which doesn’t tell investors much. Seven of the rates it a ‘buy’, and one overweight.
You should always ask yourself about industry position when judging companies in the cruise industry being that is among the most oligopolistic industries out there. This is the fact that three companies — Carnival, Royal Caribbean (NYSE:RCL), and Norwegian Cruise Line Holdings (NYSE:NCLH) accounted for more than 75% of all passengers in 2021.
Carnival was far and away the leader among them, accounting for 42% of all cruise passengers which represented 37.1% of all revenue. Royal Caribbean is similar in that it accounted for a greater percentage of passengers overall (23.6%) than revenues (21.2%).
One could make an argument that Norwegian Cruise Line Holdings is relatively attractive because it attracted 9.5% of overall traffic and 12.6% of revenue — but the greater point is that investors will likely continue to flock to Carnival by dint of sheer size.
Resumption of Revenues
Investors who agree with the assertion that Carnival simply makes sense due to size also want to know when revenues will normalize.
Current estimates are that it will happen in 2023. The 10 analysts with coverage as reported on Yahoo! Finance predict Carnival will see $20.48 billion in revenues throughout 2023. That isn’t quite as high as the $20.825 billion it recorded in 2019, but it’s very close.
Those same analysts also believe Carnival should post in the neighborhood of $15.16 billion in revenues in 2022. That will put the company in a similar revenue range to where it was in 2015. Importantly, Carnival should see $2.31 billion in revenues in its upcoming earnings report. If the company reports exactly those numbers, it’ll represent 80.5% sequential revenue growth over the $1.286 billion in the previous quarter.
That will be a strong signal that Carnival is returning to normalcy and a potential catalyst for quick upward price movement. Revenue appears to be headed in the right direction. Another question then is the debt Carnival has taken on during the pandemic.
There is no doubt about it, Carnival’s debt load increased drastically as a result of the pandemic. All of those assets sitting idle ended up costing a lot of money. You can’t really sugar coat the issue: Carnival has $9.675 billion of long-term debt to end 2019.
That long-term debt ballooned to $28.5 billion by the end of November 2021. It will weigh on CCL stock’s performance moving forward. But at the same time, Carnival remains liquid. And if the stock market hasn’t already pushed CCL stock to a bottom it’s hard to see what else could.
The Bottom Line
Carnival has entered a period of slow recovery. Revenues are still quite far from their pre-pandemic levels to be sure. But the company will also report increasing sequential revenues soon which should excite investors.
Carnival is forever changed by the pandemic. The debt it incurred will hang around for a long time but its position is secure and that will keep it relevant for a long time as well. Expectations are that Carnival is about to release strong sequential revenue numbers. Those should go a long way in solidifying a comeback narrative for the company and the stock.
Investors need to ask themselves if Carnival hasn’t folded by now, what could make it fold? The answer is that there isn’t anything imminent and prices have held on this long so they should move higher.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.