Long-established in the Travel & Leisure industry, Carnival Corp (CCL, Financial) has enjoyed a stellar reputation. However, it has recently witnessed a daily loss of 1.52%, juxtaposed with a three-month change of 37.83%. Fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Carnival Corp.
What Is the GF Score?
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 4/10
- Profitability rank: 6/10
- Growth rank: 1/10
- GF Value rank: 8/10
- Momentum rank: 9/10
Based on the above method, GuruFocus assigned Carnival Corp the GF Score of 69 out of 100, which signals poor future outperformance potential.
Understanding Carnival Corp's Business
With a market cap of $22.87 billion and sales of $21.59 billion, Carnival Corp stands as the largest global cruise company, boasting 92 ships in service at the end of fiscal 2023. Its diverse portfolio includes renowned brands such as Carnival Cruise Lines, Holland America, Princess Cruises, and Seabourn in North America; P&O Cruises and Cunard Line in the United Kingdom; Aida in Germany; Costa Cruises in Southern Europe; and P&O Cruises in Australia. Additionally, Carnival Corp owns Holland America Princess Alaska Tours in Alaska and the Canadian Yukon. The company's brands attracted about 13 million guests in 2019, prior to COVID-19, a level it reached again in 2023, showcasing its resilience and market presence.
Financial Strength Breakdown
Carnival Corp's financial strength indicators present some concerning insights about the company's balance sheet health. With an interest coverage ratio of 0.95, Carnival Corp is positioned worse than 85.76% of 590 companies in the Travel & Leisure industry. This ratio, which is far below the preferred benchmark set by Benjamin Graham, highlights potential challenges the company might face when handling its interest expenses on outstanding debt.
The company's Altman Z-Score of 0.61 is below the distress zone threshold of 1.81, suggesting potential financial distress in the near future. Moreover, the low cash-to-debt ratio of 0.08 indicates a struggle in managing existing debt levels. The debt-to-equity ratio of 4.63, which is higher than 92.61% of companies in the industry, and a debt-to-Ebitda ratio of 7.29, exceeding Joel Tillinghast's warning level, further underscore the company's financial vulnerabilities.
Growth Prospects
A lack of significant growth is another area where Carnival Corp seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by an average of 30% per year over the past three years, underperforming 89.12% of 763 companies in the Travel & Leisure industry. This decline in revenue is a red flag in a market that demands constant innovation and growth.
Furthermore, Carnival Corp's predictability rank of one star out of five adds to investor uncertainty regarding the consistency of revenue and earnings.
Next Steps
Considering Carnival Corp's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. The company's current financial state and lack of growth momentum may not bode well for future returns, posing a significant challenge for value investors seeking robust and stable investments. As the industry evolves and competition intensifies, Carnival Corp will need to address these financial and growth concerns to reassure investors of its potential for recovery and success.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
