Carnival Corporation & plc CCL shares have been performing well this year. The stock is currently trading near its 52-week high of $27.17 (touched on Thursday, Dec. 5).

In the past three months, CCL stock has gained 54.1%, outperforming the Zacks Leisure and Recreation Services industry return of 29.3% and the S&P 500 Index growth of 7.8%. Also, it has fared better than its industry peers, such as Royal Caribbean Cruises Ltd. RCL (up 47%), Norwegian Cruise Line Holdings Ltd. NCLH (up 42.1%), and OneSpaWorld Holdings Limited OSW (up 27.3%).

CCL’s 3-Month Price Performance

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Technical indicators suggest continued strong performance for CCL. The stock is trading above its 50-day moving average, signaling robust upward momentum and price stability.

CCL Stock Trades Above 50-Day Moving Average

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Key Drivers of Carnival’s Performance

Solid Booking Trends: Carnival’s luxury cruise line, Cunard, has achieved record-breaking guest bookings for 2024, reporting 23% year-over-year growth, with 73,000 additional reservations compared to 2023. Notably, there was a 49% surge in first-time guests, with strong contributions from the U.K. (up 24%) and North America (up 29%). The introduction of the Queen Anne ship in May, alongside innovative cruise programs, has significantly bolstered the brand’s appeal. International bookings also rose 22% due to effective global marketing strategies, with over half of the reservations originating outside the U.K.

Similarly, Carnival’s Princess Cruises reported a record-breaking booking period during the four-day period covering Black Friday through Cyber Monday. During the period, bookings increased 32% year over year. Demand for 2026 sailings jumped 66%, highlighting a trend of travelers planning vacations further in advance. Initiatives such as new itineraries, enhanced fleet options, and onboard innovations have driven this success, particularly in popular regions like Alaska, Europe and the Caribbean. This robust demand underscores Carnival's resilience and growth potential, setting a positive trajectory for its future in the dynamic travel market.

Growth in Onboard Spending: Onboard spending has shown accelerated year-over-year growth, reflecting high customer engagement. Carnival's marketing efforts, including elevated digital campaigns, have successfully driven demand, attracting more new-to-cruise and repeat guests. The company is also gaining market share from land-based vacations, addressing pricing disparities and appealing to broader customers.

Innovations and Strategic Investments: Carnival is advancing its fleet with next-generation ships, such as the Sun Princess and Star Princess, and modernizing existing vessels through initiatives like AIDA Evolution. Beyond its fleet, the company is enhancing its destination offerings with the upcoming Celebration Key (set to debut in July 2025). This, along with enhancements at Half Moon Cay, will likely accommodate the largest ships, reducing fuel costs and environmental impact while elevating the guest experience.

Strengthened Financial Position: Carnival has significantly improved its financial health, doubling its revenue in just two years. The company's strong free cash flow has enabled aggressive debt reduction, improving its debt-to-EBITDA ratio by two turns within nine months. For fiscal 2024, the company anticipates adjusted EBITDA to be approximately $6 billion compared with the previous expectation of $5.83 billion.

Adjusted net income during the year is anticipated to be nearly $1.76 billion, up from the previous expectation of $1.55 billion. In fiscal 2024, the company expects adjusted earnings per share (EPS) to be $1.33 compared with the previous expectation of $1.18. Carnival’s commitment to deleveraging and its limited new ship deliveries through 2028 provide a stable foundation for continued financial strength.

The Zacks Consensus Estimate for CCL’s 2024 and 2025 EPS has moved up 2.3% and 4.9%, respectively, in the past 60 days. The upward revision in earnings estimates indicates analysts’ increasing confidence in the stock.

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CCL Returns Higher Than the Industry

CCL’s trailing 12-month return on equity (ROE) is indicative of its growth potential. ROE for the trailing 12-months is 22.30%, higher than the industry’s 21.67%. This reflects the company’s efficient usage of shareholder funds.

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Carnival Trades at a Discount

From a valuation standpoint, the company appears inexpensive relative to the industry. It is currently trading at a discount with a forward 12-month price-to-earnings (P/E) multiple of 15.57X, below the industry average of 22.24X.

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CCL’s Hurdles: Heavy Debt Load & Rising Costs

Carnival’s business relies heavily on consumer discretionary spending, global economic stability, and currency trends, making it particularly sensitive to changes in the broader market. Despite its recent financial achievements, Carnival’s stock remains highly volatile and susceptible to market pessimism. Economic challenges, such as inflation or reduced consumer spending, could hurt its ability to sustain high prices and fill its growing fleet, posing significant risks to investors.

Carnival has made commendable progress in reducing its debt, paying $7.3 billion since 2023. However, its debt-to-EBITDA ratio is projected to stay high at 4.5 times by the end of 2024. This substantial debt load, combined with the ongoing burden of interest payments, remains a concern for the company’s financial health and profitability in the near term.

Carnival’s growth plans, such as the Celebration Key destination and fleet upgrades, are expected to increase operational costs. The company anticipates a 17% year-over-year rise in dry-docking days in 2025, along with higher expenses tied to its new projects. While these investments are aimed at boosting long-term returns, they may reduce margins and weigh on investor gains in the short term.

Is This the Right Time to Buy CCL Stock?

While Carnival's recent strong performance, solid bookings and improved financial position present an enticing case, near-term risks from high debt levels, rising operational costs and vulnerability to economic uncertainties suggest caution.

Investors are advised to monitor Carnival's ability to manage its debt, sustain its pricing strategy, and execute its growth plans effectively to determine the stock's viability. We recommend waiting for a more favorable entry point. For current shareholders, holding the stock may be a prudent choice, given its potential for long-term growth. With a Zacks Rank #3 (Hold), Carnival remains a promising yet cautious pick in the dynamic cruise sector.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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