Maybe a Carnival stock cruise next week next week?

This may be a break before earnings season begins in earnest in a few weeks, but that doesn’t mean there’s a moratorium on financial updates. Carnival (CCL 0.19%) (CUK 0.29%) reports its fiscal third-quarter results before the market opens on Monday.

The last trading day of the month — and the quarter — won’t be sleepy. The Carnival Report covers the months of June, July and August. This is peak travel season for the cruise industry. Expectations may be high and rising, but Carnival has risen to the challenge before.

Gaining his sea legs

Much is based on fresh numbers next week. The world’s largest cruise line operator may be trading roughly where it was at the start of this year, but it doubled last year.

How high is the cruise line’s third fiscal quarter stock? Its June guidance calls for a reported profit of $1.15 per share, the lion’s share of the $1.18 per share it targets for the full fiscal year 2024. Analysts are holding out for slightly more, targeting quarterly profit of 1.16 USD per share and annual earnings. of $1.21 per share.

Beating a company’s guidance can be a risky game for analysts, but they have consistently missed the mark over the past two years. Lately, the gap between what Wall Street professionals are modeling and what Carnival ultimately delivers is widening.

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

Let’s say after seven consecutive bottom-line beats — including at least double-digit percentage beats in each of its last four reports — Carnival lands right on its guide. A lot can happen when earnings per share jump 34% to $1.15 for the cruiser’s biggest quarter yet. Carnival is trading for 25 times trailing earnings right now. The next time the market opening bell rings, that multiple will drop to 18.

Image source: Getty Images.

Riding the wave

There are several good reasons to suggest that it follows a different rhythm. Two analysts raised their price targets this month, largely in anticipation of a financial update later this month. Last week it was Steven Wieczynski at Stifel Financial believing another beat-and-raise performance could send the stock higher. Looking ahead next year, he sees the potential for Carnival to earn much more than the $1.58 per share that his fellow analysts are currently modeling. In other words, Carnival could be trading at much less than 12 times forward earnings.

A day earlier it was Ben Chaiken at Mizuho Financial Group with the target impulse. He sees Carnival’s improving underlying trends and this summer’s drop in fuel prices as favorable catalysts for a strong third-quarter fiscal report. Carnival is his company’s top choice in the leisure sector. The two new revised price targets from last week imply that Carnival stock has 34% to 45% upside in the near term.

Analysts see Carnival’s revenue hitting a record quarterly revenue of $7.83 billion, up 14 percent from where it landed last summer and 20 percent from its pre-pandemic peak. There’s certainly room for a beat here, too, but the best chance for a breakout beat comes from the bottom given the scalable nature of the business and all the favorable tailwinds behind Carnival’s fleet.

Will Carnival surpass the record $8.3 billion in customer deposits it held at the end of May? Don’t bet on it. A lot of that money went into the summer travel rush. This measure fell sequentially between the second and third fiscal quarters of last year as well. Will Carnival retire more than the $6.6 billion in debt it has repurchased over the past five quarters? This is a smarter bet. Carnival could even follow its nearest rival and resume its quarterly dividend, but the best use of its newfound wealth is to reduce or at least refinance its substantial leverage.

With cruise line stocks rising in recent weeks, Carnival will need more than a good quarter to maintain growth. Fortunately for investors, fundamentals and momentum are on their side right now.