News

Shares of Carnival Corporation & plc CCL have gained 41.1% in the past three months compared with the industry’s 16.5% growth. The company has been benefiting from strong bookings, marketing efforts and new ship additions. Also, the focus on strategic initiatives bodes well. However, increased expenses are a concern.

Let us discuss why investors should retain the stock for the time being.

Key Growth Drivers

Carnival gains from solid booking momentum. During the fiscal fourth quarter, the company reported solid bookings for the North America and Australia (NAA) and Europe segments. Strong demand, bundled package offerings and pre-cruise sales backed the upside. Also, it stated the benefits of increased advertising activities.

During the quarter, the company witnessed significant bookings during the Black Friday and Cyber Monday period, marking an all-time high and leading to an exceptional start for 2024 in pricing and occupancy. With the majority of the 2024 business secured (at higher prices), CCL is optimistic about the prospects for the upcoming year.

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CCL has been capitalizing on robust demand for cruising, a favorable pricing environment and initiatives to increase capacity. The company highlights the benefits of new marketing campaigns and demand-generation efforts, with a substantial increase in web visits during the fiscal 2023 compared with 2019 levels.

Looking ahead, the company is focused on commercial enhancement activities, advertising investments and lead-generation efforts to sustain demand-building momentum. Key initiatives include the development of Celebration Key, deploying 18 Carnival ships from nine home ports, improving guest traffic at Half Moon Cay and constructing two floating dry docks in collaboration with shipyard partners in Grand Bahamas. The strategic move to build floating dry docks aims to minimize travel time, protect revenue days and reduce fuel consumption for future advantages.

Carnival is consistently boosting onboard revenues through strategic bundling, pre-cruise sales and enhancing newer ships with additional features for enhancing guest experience. The approach positions the company well for sustained growth in onboard revenue in the upcoming year. The company anticipates full-year occupancy to return to historical levels with a 5% increase in capacity, supported by higher per diems.

Concerns

Carnival has been bearing the brunt of high expenses for quite some time. During the fiscal fourth quarter, adjusted cruise costs (excluding fuel per ALBD) increased 11% (in constant currency) from third-quarter 2019 levels. The upside was primarily driven by higher dry-dock-related expenses and advertising investments. For fiscal 2024, the company anticipates adjusted cruise costs, excluding fuel per ALBD (at constant currency or cc), to rise nearly 4.5 % year over year.

For first-quarter fiscal 2024, it expects adjusted cruise costs excluding fuel per ALBD (at cc) to increase approximately 9.5% year over year, owing to higher occupancy levels, the timing of advertising investments and dry-dock-related expenses compared with a year ago. Per our model, total operating expenses in 2024 are expected to rise 4.8% year over year to $20.6 billion.

Zacks Rank & Key Picks

Carnival currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Consumer Discretionary sector are as follows:

Virco Mfg. Corporation VIRC sports a Zacks Rank #1 (Strong Buy). VIRC has a trailing four-quarter earnings surprise of 188.6% on average. VIRC’s shares have surged 151% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for VIRC’s 2024 sales and earnings per share (EPS) indicates a rise of 15.7% and 32.4%, respectively, from the year-ago period’s levels.

Stride, Inc. LRN carries a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 44.3% on average. Shares of LRN have surged 75.5% in the past year.

The Zacks Consensus Estimate for LRN’s 2024 sales and EPS indicates a rise of 9.1% and 34.7%, respectively, from the year-ago period’s levels.

American Public Education, Inc. APEI sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 23.2% on average. Shares of APEI have declined 15% in the past year.

The Zacks Consensus Estimate for APEI’s 2024 sales and EPS indicates a rise of 2.5% and 115.8%, respectively, from the year-ago period’s levels.

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