Why carnival stock rose 12% in September

Carnival Corp. (CCL 1.22%) (CUK 1.35%) The stock gained 12% in September, according to data from S&P Global Market Intelligence. Investors are increasingly excited about its potential in a lower interest rate environment.

A once in a lifetime experience

Carnival is the world’s largest cruise operator and was a strong market stock before the pandemic. He’s made incredible progress in his comeback, but there are some hurdles to overcome.

Income and deposits are at record levels and demand is stronger than ever. Profitability is still coming back, but it’s going well.

In the third fiscal quarter of 2024 (ended Aug. 31), revenue rose 14% year-over-year, or $1 billion, to $7.9 billion. Operating income rose 34% to $2.2 billion, more than expected, and net income rose 60% to $1.7 billion.

Cruises are booked through 2025 at high levels and high ticket prices, leading to higher performance. It also begins bookings from 2026 at “unprecedented” levels.

Despite another excellent earnings report, Carnival stock fell after its third-quarter report. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) guidance of $114 million was below analysts’ expectations of $116 million, based on the estimate of 5 percent net return growth compared to last year, which management he says it was very strong. .

Adjusted EBITDA for the third quarter was above expectations by $160 million, and this guidance does not look worrisome. Full-year net returns are also expected to rise 10.4% from last year. Carnival stock has mostly recovered from the decline in earnings.

Interest rates matter

High interest rates have affected companies in different ways. Some of them have felt this more acutely than others, and while it hasn’t hindered Carnival’s performance, one way the company will feel lower interest rates is through debt repayment.

High debt is the hole in Carnival’s investment thesis. Carnival has reported phenomenal results, but is on shaky financial footing because it is so deeply in debt. At the end of the third quarter, it still has nearly $29 billion in total debt, though it has paid down $7.3 billion since the start of 2023.

Lower interest rates mean you can refinance at better rates, lower your total interest and pay off more capital faster.

More broadly, lower interest rates can boost what is already a strong business, as more people should feel comfortable with larger purchases like cruise tickets.

Carnival has momentum and should become a long-term market-beater stock again.