Carnival Corporation (CCL) – Company Overview

Carnival Corporation (CCL) is a multinational cruise line company that specializes in entertainment travel. It is the largest cruise operator with British-American roots in the world. Each year, millions of passengers travel on the company’s fleet of approximately 24 comfortable ships. These ships offer a wide range of amenities, including restaurants, spas, theaters, 5D-cinema theaters, swimming pools, art galleries, boutiques featuring renowned brands, and world-class entertainment shows. A distinctive feature of all the company’s ships is a special pipe in the shape of a whale’s tail fin, which serves as the corporation’s logo.

The company operates in two main geographic segments: North America and Australia (NAA) and Europe and Asia (EAA). In addition to its cruise operations, the company also owns and operates hotels, lodges, and glass-domed railroad cars. The company primarily sells its cruises through travel agents and tour operators.

Initially focused on North America, Carnival expanded its cruise routes to Europe in 2005. Today, the company’s cruise regions include destinations such as Bermuda, Bahamas, Caribbean, Hawaii, Central America, the Mediterranean, Panama Canal, Canada, and Alaska. The ports of call around the world allow guests of the cruise liners to visit a variety of countries during a single cruise.

While on board, guests can explore the local attractions, engage in activities like scuba diving, swimming, canoeing, kayaking, and even play golf at world-class courses. Shopping is also a popular activity for guests, offering them the opportunity to bring back souvenirs for friends and family.

CCL Stock – Worth Buying

What can investors expect from CCL stock price? Carnival, the world’s largest cruise ship operator, reported financial results for Q1 2023 that exceeded consensus expectations, but earnings projections for 2023 disappointed investors. Despite this, we maintain our target price at $10.5 and change our recommendation to Buy.

The company’s revenue reached $4.4 billion, which is approximately 95% of its pre-pandemic level (+2.4% compared to consensus). Adjusted EBITDA was $382 million, surpassing management’s forecast of $250-350 million. Order bookings have exceeded historical highs, resulting in paid orders reaching $5.7 billion, 16% higher than 2019 levels.

However, the earnings forecast for 2023 falls below consensus. Carnival still expects negative net income due to increased operating expenses (such as energy costs and inflation) and interest expenses. Interest expenses are expected to amount to $2 billion, accounting for around 50% of EBITDA. EBITDA is projected to be $3.9-4.1 billion. Nonetheless, the management believes that the free cash flow will turn positive by the end of the year, which will have a positive impact on Carnival’s market capitalization.

The company does not face immediate liquidity risks and capital dilution. At the end of Q1, Carnival had $8.1 billion in liquidity, including $5.45 billion in cash and lines of credit. The total debt stood at $35 billion.

NYSE: CCL needs to repay $1.8 billion in liabilities in 2023. Given the cash reserves and projected free cash flow (-$400 million based on our estimate, positive free cash flow according to management forecasts), the company is expected to have no repayment problems or the need for capital dilution. Debt refinancing will be required in 2024, with a maturity of $2.5 billion.

Although management’s earnings projections fell short of consensus, the increasing number of bookings indicates rising demand, which could exceed earnings projections if service prices rise.

Cruises offer a cost advantage of 25-50% compared to traditional hotel vacations, and with a slowdown in consumer activity, demand could shift in favor of cruises. A key management goal is to reduce the debt burden.

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