2 great reasons to buy carnival stock in September

With the peak summer travel season for cruise lines fading behind us, this might seem like an odd time to consider Carnival (CCL -0.46%) as an investment. There are also some tropical disturbances swirling in the Caribbean that could wreak havoc on the itinerary — or even cause outright sailing cancellations — in September.

However, I still think this would be a great time to warm up to cruise line stocks in general and Carnival in particular. It operates the largest fleet of cruise ships in the world, and that niche of the travel industry is booming right now. The carnival stock may already be up nearly 20% from its spring lows, but that doesn’t mean you missed the — umm — boat. Let’s look at some reasons why you might want to consider buying Carnival shares this month.

1. Earnings season comes early

Carnival operates on a different fiscal calendar than its peers. Its year ends at the end of November, so its third fiscal quarter ended last week. Historically reports on that period in the last week of September. It is also regularly Carnival’s strongest report of the year, covering the happy cruise months of June, July and August.

Expectations are high for the company after it last posted explosive numbers. Analysts expect to see revenue rise 14% to $7.81 billion, 20% more than the company’s pre-pandemic summer record. Things get even more impressive in the background. The consensus estimate among Wall Street professionals is for a profit of $1.15 per share, a 34% jump year over year.

A 34% increase in earnings per share is impressive in any scenario. It gets even better when you factor in the Carnival boost. For the past two years, it has easily blown through analysts’ profit targets.

Data source: Yahoo! Finance. EPS = earnings per share.

A streak of seven hits in a row is not uncommon. However, as the last column shows, the gaps are generally widening between where analysts anticipate Carnival’s profitability to land and where it actually arrives in port. The world’s largest cruise line operator has posted double-digit growth or better in each of the past four quarters. That’s something you like to see heading into a revealing financial update like the one due later this month.

Image source: Getty Images.

2. Carnival is cheaper than you think

You might expect that you’d have to pay a healthy premium for a stock that perpetually generates knock-and-raise performances, but that’s not the case here. Carnival shares are trading down 13% this year despite huge beats and a bullish outlook.

It has only been profitable in two quarters since the start of the pandemic, but the future looks much brighter. Management guidance at the end of June called for a profit of $1.18 per share for the fiscal year ending in November, pricing the stock at just 14 times this year’s earnings. Carnival hasn’t initiated a forecast for next year, but analysts are predicting earnings per share of $1.55 in fiscal 2025. Carnival is trading at a little more than 10 times the estimate, and we know what Carnival has done with the targets on Wall Street lately. .

It is true that Carnival had to issue a lot of debt during the heavy downtime when it was not allowed to operate during the COVID-19 pandemic. Its enterprise value of $49.5 billion is more than double its market cap, so the multiples look less attractive if you zoom in — or zoom out — to look at net debt.

However, Carnival has retired $6.6 billion in debt over the past five quarters. Just imagine how much more of that leverage you’ll be able to remove with the cash flow coming out the portholes. With a record $8.3 billion in customer deposits for future voyages, it has strong bookings now as people return to the high seas for their adventurous vacations. With all that in mind, September should be anything but boring for Carnival and its investors.