Long-established in the Travel & Leisure industry, Carnival Corp (CCL, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 3.53%, juxtaposed with a three-month change of -17.47%. However, 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: 3/10
- Profitability rank: 6/10
- Growth rank: 1/10
- GF Value rank: 4/10
- Momentum rank: 9/10
Based on the above method, GuruFocus assigned Carnival Corp a GF Score of 64 out of 100, which signals poor future outperformance potential.
Understanding Carnival Corp's Business
Carnival Corp, with a market cap of $18.78 billion and sales of $20.04 billion, is the largest global cruise company, boasting a diverse portfolio of brands. These include 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. The company also owns Holland America Princess Alaska Tours in Alaska and the Canadian Yukon. Carnival's brands attracted about 13 million guests in 2019, prior to COVID-19, a level it should reach again in 2023. With an operating margin of 2.19%, Carnival Corp's financial health is a critical factor for its ability to sustain operations and growth.
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 0.21, Carnival Corp is positioned worse than 97.42% of companies in the Travel & Leisure industry. This ratio, which is significantly 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 just 0.54 is below the distress zone threshold, suggesting potential financial distress in the near future. Moreover, the low cash-to-debt ratio of 0.09 indicates a struggle in managing existing debt levels. The debt-to-equity ratio of 4.69, which is higher than the majority of its peers, and a debt-to-Ebitda ratio of 11.8, exceeding Joel Tillinghast's warning level, further underscore the company's financial vulnerabilities.
Growth Prospects
The growth outlook for Carnival Corp is also tepid, as reflected by its low Growth rank. The company's revenue has declined by an average of 30% per year over the past three years, which is worse than 89.31% of companies in the Travel & Leisure industry. This decline in revenue is a significant concern in a market that demands constant evolution and innovation.
Furthermore, Carnival Corp's predictability rank is just one star out of five, which adds to the uncertainty faced by investors regarding the consistency of the company's revenue and earnings.
Conclusion: The Road Ahead for Carnival Corp
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 high debt levels, weak interest coverage, and declining revenue growth paint a challenging picture for its future prospects. Investors should weigh these factors carefully when evaluating Carnival Corp's potential to deliver returns. For those seeking more robust investment opportunities, GuruFocus Premium members can explore companies with strong GF Scores using the 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.
