Conflict and piracy in and around the Red Sea have thrown a monkey wrench into the travel plans of cruise ship companies that operate there. Carnival Corp. (CCL 0.18%), in particular, suffered a minor setback on Monday, when analysts at Susquehanna International Group said they would tweak their price target lower, to $22 per share. As the analyst explained in a note covered on TheFly.com, “certain itineraries” around the Red Sea have been rerouted, and others canceled outright.
Despite this setback, Susquehanna’s $22 price target still implies that Carnival stock will gain about 29% over the next year — not bad for a stock that already nearly doubled over the last year.
Is Carnival stock a buy?
Susquehanna’s note focuses on the short-term implications of Red Sea events for Carnival’s Q1 earnings results, tempering optimism about the company’s performance during the upcoming “2024 Wave Season” — i.e. “Summer,” or “Q3” to investors. But the story surrounding this cruise line stock’s comeback is a whole lot bigger than just one quarter.
After eking out an existence despite the pandemic, Carnival has come roaring back, recording significant revenue gains in 2022, setting a new record for revenue in 2023, and coming within a whisker of earning a profit as well. (Carnival lost just $74 million last year, according to S&P Global Market Intelligence data, after losing $10 billion in 2020).
By all accounts, 2024 should be the year Carnival completes its recovery. Analysts on average forecast another revenue-record-setting year ($24.6 billion) and nearly $1 a share in profits (giving the stock a modest P/E ratio of 18). And things are likely to only get better from there.
Over the next five years, Carnival sales are expected to grow 11% annually, while its earnings rise more than double to $2.53 per share. Granted, debt is still a problem — Carnival owes $29.5 billion net of cash on hand — and the company needs to keep making progress paying that down. But bankruptcy fears seem behind Carnival for well and good now, and sunnier seas lie ahead.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends S&P Global. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.
