Could Carnival stock move higher next week?

That may mean a lull before earnings season begins in earnest in a few weeks, but it doesn’t mean there’s a moratorium on financial updates. Carnival (NYSE:CCL) (NYSE:CUK) announces fiscal third-quarter results before the market opens on Monday.

The last trading day of the month – and quarter – will not be a sleepy one. The Carnival report covers the months of June, July and August. This is the peak tourist season for the cruise industry. Expectations may be high and rising, but Carnival has met this challenge before.

Getting your sea legs

Much depends on next week’s new numbers. The world’s largest cruise line operator may be operating at essentially the same level as earlier this year, but its sales more than doubled last year.

How big is the cruise line fleet in its fiscal third quarter? Its June guidance calls for reported earnings of $1.15 per share, the lion’s share of the $1.18 per share target for full fiscal 2024. Analysts expect slightly more, assuming quarterly earnings of $1.16 per share and annual profits. of $1.21 per share.

Beating company guidelines can be a gamble for analysts, but they have been consistently out of touch over the past two years. Recently, the gap between what Wall Street professionals model and what Carnival ultimately delivers has been widening.

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

Let’s assume that after seven consecutive earnings increases – including at least double-digit percentage gains in each of the last four reports – Carnival sticks exactly to its guidance. A lot can happen when earnings per share jump 34% to $1.15 in the biggest quarter. Carnival is currently trading at 25 times trailing earnings. The next time the market opening bell rings, this multiplier will drop to 18.

Image source: Getty Images.

Riding the wave

There are some good reasons to suggest that another beat is coming. Two analysts have raised their price targets this month, mainly to get ahead of the financial update coming later this month. Last week it was Steven Wieczyński at Financial Stifel believing that further beat-and-conquer results could drive the stock price higher. Looking ahead to next year, he sees 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 trade for much less than 12 times forward earnings.

The day before it was Ben Chaiken at Mizuho Financial Group with target gain. It sees improvements in the main trends underlying Carnival and the decline in fuel prices this summer as growth catalysts supporting a strong third-quarter fiscal report. Carnival is his company’s favorite product in the leisure sector. Last week’s two new revised price targets suggest Carnival shares will rise 34% to 45% in the near term.

Analysts believe Carnival’s revenue hit a quarterly record of $7.83 billion, up 14% from last summer’s revenue and 20% above its pre-pandemic peak. There’s certainly room for impact here, too, but the best shot at momentum comes from the bottom line, given the scalable nature of the business and all the favorable tailwinds behind the Carnival fleet.

Will Carnival break the $8.3 billion customer deposit record it held at the end of May? Don’t bet on it. Much of that money went to busy summer cruises. This ratio also declined sequentially between the second and third fiscal quarters of last year. Will Carnival retire more than the $6.6 billion in debt it has purchased over the last five quarters? It’s a smarter bet. Carnival may even follow its closest rival and resume paying a quarterly dividend, but for now it’s best using its newfound wealth to reduce or at least refinance its significant financial leverage.

Given the surge in cruise line stock prices in recent weeks, Carnival will need more than just a good quarter to maintain its gains. Fortunately for investors, fundamentals and momentum are currently on their side.

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Rick Munarriz holds positions at Carnival Corp. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.