Why Carnival Stock Jumped 12% in September

Carnival Corp. (NYSE: CCL)(NYSE: CUK) stock gained 12% in September according to data provided by S&P Global Market Intelligence. Investors are getting more excited about its potential in a lower interest rate environment.

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Carnival is the world's largest cruise operator, and it was a strong market-beating stock before the pandemic. It has made incredible progress in its rebound, but there are some obstacles to overcome.

Revenue and deposits are at record levels, and demand is stronger than ever. Profitability is still making its way back, but it's moving along nicely.

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

Cruises are booked out through 2025 at high levels and at high ticket prices, leading to the outperformance. It's also starting 2026 bookings at "unprecedented" levels.

Despite another excellent earnings report, Carnival stock fell after the third-quarter report. Guidance for fourth-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $114 million came in below analyst expectations of $116 million based on net yield growth guidance of 5% compared with last year, which management says was very strong.

Third-quarter adjusted EBITDA came in ahead of expectations by $160 million, and that guidance doesn't look worrisome. It's also expecting full-year net yields to increase 10.4% over last year. Carnival stock has mostly recovered from its after-earnings tumble.

Interest rates matter

High interest rates have impacted companies in different ways. Some of them have felt it more acutely than others, and while it hasn't stymied Carnival's performance, one way the company will feel lower interest rates is in its debt repayments.

The large debt is the hole in the Carnival investment thesis. Carnival has been reporting phenomenal results, but it's sitting on a precarious financial foundation because it's so deep in debt. As of the end of the third quarter, it still has nearly $29 billion in total debt, although it's paid off $7.3 billion since the beginning of 2023.

Lower interest rates mean it can refinance at better rates, lower its total interest, and pay off more of its principal faster.

In a broader sense, lower interest rates can boost what's already a strong business as more people should feel comfortable with larger purchases like cruise tickets.

Carnival has momentum, and it should revert to being a market-beating stock for the long term.

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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.