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Why Carnival stock rose 17.7% this week

Shares of Carnival Corp. (NYSE: CCL) rose as much as 17.7% this week after the company reported earnings, according to data from S&P Global Market Intelligence. Shares ended the week up 16.5%.

The profit jump

Carnival’s revenue rose 17.7% to $5.78 billion and earnings per share rose to $0.11 from $0.31 a year ago. The bigger news, however, was the forecast.

Management now expects net profit to increase by 10.25% in 2024, up from the 9.5% forecast in March. And adjusted net income guidance was raised by $275 million to $1.55 billion.

Customer deposits rose to $8.3 billion, $1.1 billion more than ever before.

Carnival’s improvement offset by debt

While Carnival’s operating conditions are improving significantly, the company’s debt remains a challenge. The balance sheet still shows debt of $29.4 billion and interest expenses of nearly $2 billion.

The increase in customer deposits is solid, but the company is using the deposits to pay down debt as it only has $1.6 billion in cash on the balance sheet. Should there be an economic downturn or a drop in bookings, this could quickly turn into a situation where more capital is needed to survive.

The market sees this as positive news, and if trends continue, Carnival will have made an impressive comeback from the pandemic-related closures. But the debt is too high for me to buy the stock, even if Carnival believes it is now on the path to sustained profitability.

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Travis Hoium does not own any stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.

Why Carnival Stock Soared 17.7% This Week was originally published by The Motley Fool

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