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Here's Why Investors Should Retain Carnival (CCL) Stock Now

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Carnival Corporation & plc (CCL - Free Report) will likely benefit from improved booking trends, cost-saving efforts and fleet-optimization initiatives. However, inflationary pressures and geopolitical tensions are a concern.

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

Key Growth Drivers

Shares of Carnival have gained 44.6% in the past three months compared with the industry’s 23.9% growth. The company has been benefitting from strong demand for cruising, relaxation in COVID-related protocols, acceleration in booking volumes and better alignment of land-based vacation alternatives. During the fiscal fourth quarter, the company stated that North America and Australia segment's 2023 booking volumes are above 2019 levels. The company stated that its 2023 cumulative advanced booked position is above the historical ranges and at increased prices compared with 2019 levels. Total customer deposits as of Nov 30 were $5.1 billion compared with $4.8 billion reported in the previous quarter. The amount was higher than $4.9 billion reported in 2019. The company intends to focus on strategic deployments (closer to guests’ home itineraries) and shorter-duration cruises to reduce the friction of air travel and boost booking environment.

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Emphasis on cost-saving initiatives bodes well. In August 2022, the company announced the global rollout of Service Power Packages (a comprehensive set of technology upgrades) to reduce both fuel usage and greenhouse gas emissions and contribute to cost savings. This includes comprehensive upgrades to each ship's hotel HVAC systems, technical systems upgrades, state-of-the-art LED lighting systems and remote monitoring and maintenance of energy usage and performance. The company anticipates the upgrades to generate approximately $150 million in annual fuel cost savings by delivering an average of 5-10% fuel savings per ship.

Carnival continues to focus on fleet optimization to drive growth. The company emphasized the exit of 26 less efficient ships from its fleet (since 2019). Although the initiative is likely to contract capacity growth to 3% in 2023 (from 2019 levels), the company remains optimistic about replacement with new ships and capitalization of pent-up demand. The company anticipates 50% of its capacity to comprise newly delivered, larger and more efficient ships, thereby making way for a return to profitability and improvement in its return on invested capital. The company anticipates the fleet optimization initiative to boost revenues on the rise in premium-priced balcony cabins (8 percentage points), an improved platform for onboard revenue opportunities and an improvement in ship operating costs (6 percentage points).


The leisure industry is currently grappling with the coronavirus crisis and Carnival isn’t immune to the trend. China, which is closed to international travelers, will continue to hurt cruise operators. Moreover, the invasion of Ukraine and its resulting impacts (including supply chain disruptions, increased fuel prices and international sanctions) have adversely affected the company’s operations. The company anticipates the inability to find alternatives for the itineraries to disrupt booking patterns for some time.

Carnival has been bearing the brunt of high expenses for quite some time. During the fourth quarter of fiscal 2022, total operating costs and expenses came in at $3,665 million compared with $1,823 million reported in the prior-year quarter. During the quarter, adjusted cruise costs (excluding fuel per ALBD) increased 7.2% (or 11% at constant currency) from 2019 levels. The increase was primarily driven by a high inflationary environment and advertising investments. For fiscal 2023, the company anticipates adjusted cruise costs (without fuel per ALBD) to be up 5-6% (in current dollars) from 2019 levels. The company anticipates inflationary and supply chain challenges to persist for some time.

Zacks Rank & Key Picks

Carnival currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the Zacks Consumer Discretionary sector are World Wrestling Entertainment, Inc. (WWE - Free Report) , Hilton Grand Vacations Inc. (HGV - Free Report) and Manchester United plc (MANU - Free Report) .

World Wrestling Entertainment currently sports a Zacks Rank #1. WWE has a trailing four-quarter earnings surprise of 25.2%, on average. The stock has increased 68.1% in the past year.  

The Zacks Consensus Estimate for WWE’s 2023 sales and earnings per share (EPS) indicates a rise of 4.9% and 10.7%, respectively, from the year-ago period’s estimated levels.  

Hilton Grand Vacations currently sports a Zacks Rank #1. HGV has a trailing four-quarter earnings surprise of 3.7%, on average. Shares of HGV have declined 13.9% in the past year.  

The Zacks Consensus Estimate for HGV’s 2023 sales and EPS indicates a rise of 4.7% and 24.6%, respectively, from the year-ago period’s levels.

Manchester carries a Zacks Rank #2 (Buy). MANU has a trailing four-quarter earnings surprise of 34.4%, on average. Shares of MANU have gained 62.1% in the past year.  

The Zacks Consensus Estimate for MANU’s 2024 sales and EPS indicates a rise of 11.4% and 27.8%, respectively, from the year-ago levels.

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