Is Carnival Corporation & plc (CCL) the Best Travel and Leisure Stock to Buy Now?

Posted by Admin August 6, 2024 Travel

We recently compiled a list of the 10 Best Travel and Leisure Stocks to Buy Now. In this article, we are going to take a look at where Carnival Corporation & plc (NYSE:CCL) stands against the other travel and leisure stocks.

Prior to COVID-19 pandemic, travel and tourism sector was one of the most important sectors in the world economy. The sector made up ~10% of global GDP and was responsible for 320 million jobs worldwide, as reported by the IMF. After first case was identified in Wuhan, China, COVID-19 was declared a pandemic outbreak. Due to lockdowns and ban on international travel, global hospitality and tourism sector saw significant losses.

Recovery Phase of The Industry

As per first UNWTO World Tourism Barometer of the year, international tourism closed 2023 at ~88% of pre-pandemic levels, with estimated ~1.3 billion international arrivals. UNWTO World Tourism Barometer gives a brief overview of the sector’s performance in 2023, assessing recovery by global region, sub-region and destination. The Middle East led this recovery in relative terms. It was the only region to overcome pre-pandemic levels as the region saw arrivals 22% above 2019. Europe touched 94% of 2019 levels, aided by intra-regional demand along with travel from the US.

Experts believe that stage is all set for resilience and rapid recovery of travel and tourism sector, with pre-pandemic numbers anticipated by 2024 end. Rebound is having a solid impact on several economies, jobs, growth and opportunities for communities.

Despite a range of economic uncertainties and geopolitical tensions, the travel & tourism sector continues to thrive. International tourism flows bounced back at a strong pace and should fully recover by 2024 end. That being said, recovery remained uneven, and challenges still remain.

After declining ~68.3% in 2020 – which was marginally below the drop of ~72.3% globally – by 2022-end, international tourist arrivals to OECD countries recovered to ~77.3% of 2019 levels. This was ahead of ~66.6% globally. OECD countries made up ~65% of international tourism arrivals in 2022, exhibiting a rise from ~56% in 2019. This highlighted stronger performance as compared to non-OECD countries since the COVID-19 pandemic.

2023 built the momentum, and evidenced that there is still an unwavering passion for travel. This paves the way for a strong year in 2024.

Future Prospects of Travel and Tourism Industry

The World Travel & Tourism Council expects record-breaking year for travel & tourism sector in 2024. Data suggests that the sector’s global economic contribution is expected to touch all-time high of $11.1 trillion. Travel & Tourism should be able to make additional contribution of $770 billion over the previous record. This will help the industry regain its stature of global economic powerhouse. By 2034, travel and tourism is expected to account for ~11.4% of the entire economic landscape, with the contribution as high as $16 trillion to broader global economy.

Tourism and hospitality is on the cusp of disruption. Shift in source markets and destinations, higher demand for luxury traveling, and innovative business strategies are expected to improve the industry landscape.

As per McKinsey & Company, China’s $744 billion domestic travel market has been categorized as the world’s 2^nd largest. Even after the opening up of borders, Chinese travellers prefer staying close to home. Resultantly, domestic destinations continue to benefit. Changchun (known for Changchun Ice and Snow Festival) saw 160% year over year growth in visitors in 2023. In 2024, domestic travel during Lunar New Year surpassed pre-pandemic levels by ~19%. As a result of this, some Chinese travel and tourism stocks saw their share prices move northwards.

China’s domestic travel market should grow by ~12% annually and surpass the United States’ to be counted as the world’s largest by the year 2030.

One of the signs of increased demand in the travel industry is growth in aircraft orders in the aerospace industry. We covered this back in July in 10 Best Aerospace and Defense Stocks to Buy Now, here’s a short excerpt from that article:

“While sharing his insights on commercial aviation at the Morningstar Investment Conference in Chicago on June 26, Tony Bancroft from Gabelli Funds said that he had noticed a significant growth in aircraft orders lately, with both Airbus and Boeing having a 12-year backlog of orders. He believes there are three reasons driving it. The first catalyst, according to him, is China which accounts for 20% of the growth in orders to cater to the growing middle class in both China and India who want to travel more. Another critical factor he cited during his talk was that business travel has finally returned to the 2019 pre-pandemic level. Lastly, Tony highlighted the rising middle class in the United States, and the world, which is increasing air travel and contributing to the economic growth in the industry.”

Our Methodology:

For this list, we sifted through 2 ETFs i.e., Defiance Hotel, Airline, and Cruise ETF and Amplify Travel Tech ETF. Then, we chose the companies with most hedge fund investors holding stakes in them, by using Insider Monkey’s Q1 2024 database. These stocks are in ascending order of hedge fund investors having positions in them.

“Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).”

A luxurious cruise ship sailing the deep blue sea, sun glistening off its decks.

Carnival Corporation & plc (NYSE:CCL)

Number of Hedge Fund Holders: 56

Carnival Corporation & plc (NYSE:CCL) manages portfolio of global, regional, and national cruise brands specializing in selling cruise products, services, and vacation experiences.

The company announced financial results for 2Q 2024. Its net income improved by ~$500 million as compared to 2023 and its adjusted net income outperformed March guidance by ~$170 million. The company improved its commercial operations, and strategically reallocated its portfolio composition.

Carnival Corporation & plc (NYSE:CCL) is seeing strong demand trends. As a result, the company’s net yields are now forecasted to top 10% and it continues to march towards double-digit returns on invested capital. For FY 2024, the company expects adjusted EBITDA of ~$5.83 billion, up ~40% as compared to 2023 and adjusted net income of ~$1.55 billion.

Carnival Corporation & plc (NYSE:CCL) currently trades at a P/E multiple of ~25.6x. What’s holding this stock? It’s a substantial increase in the company’s debt. The company had to take more debt to finance its operations during the COVID-19 pandemic. That being said, its debt should continue to come down considering the growth in its revenue and operating profits. Operating income saw the jump to $560 million in 2Q 2024, up ~5x over the same quarter in 2023. This was supported by favourable trends in pricing, demand, and operational costs.

As per Insider Monkey’s 1Q 2024 database, 56 hedge funds reported owning stakes in Carnival Corporation & plc (NYSE:CCL). These were valued at ~$1.49 million.

Overall CCL ranks 8th on our list of the best travel and leisure stocks to buy. You can visit 10 Best Travel and Leisure Stocks to Buy Now to see the other travel and leisure stocks that are on hedge funds’ radar. While we acknowledge the potential of CCL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CCL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.