Is Carnival Stock on Track to Return to Pre-COVID Highs?
Carnival's comeback trail hits choppy waters—can the cruise giant really sail back to pre-pandemic glory?
The Recovery Gamble
Passenger numbers surge but debt anchors drag deeper than the Mariana Trench. Fuel costs bite, interest rates squeeze, and let's not forget the whole 'floating petri dish' reputation that still haunts booking charts.
Market Realities vs. Investor Dreams
Every earnings call spins recovery narratives while balance sheets bleed red. Analysts cheer capacity restorations but whisper about diluted shares and that pesky $30+ billion debt overhang—because nothing says 'bullish' like leveraging up during global uncertainty.
The Final Verdict
Pre-COVID highs? Maybe if inflation sinks, consumers splurge, and whales start buying cabins with crypto. Otherwise, it's just another 'story stock' distracting from the math—classic finance theater where hope floats better than the actual ships.
Image source: Carnival.
Bouncing back
When the pandemic essentially shut down the global economy, Carnival was forced to shutter its operations to help prevent the spread of the virus. It's not a surprise that with its ships docked, the company's revenue took a huge hit. Sales in fiscal 2021 of $1.9 billion were down a stomach-churning 91% from two years before in fiscal 2019.
In order to keep things going, management had to raise more capital. Carnival's debt balance peaked at $36.4 billion at one point in fiscal 2023. During these bleak times, it was all about survival and making sure the balance sheet could ride out the disruption.
Things have turned around for the better, as indicated by the stock's outstanding performance. These days, Carnival's business is really hitting its stride. It seems that with every passing quarter, the company is breaking new records.
During the fiscal 2025 second quarter (ended May 31), Carnival reported $6.3 billion in revenue, $8.5 billion in customer deposits, and net yields that were up 7.2% year over year. These were all records.
The bottom line is getting a boost. Operating income increased 67% compared to Q2 2024. Carnival is able to control its expenses as it grows.
Perhaps most importantly, Carnival is cleaning up its balance sheet. It's paying down its debt. As of May 31, the business still had $27.3 billion in long-term debt on the books, but this figure is coming down. The leadership team just refinanced $7 billion of debt already this year. And in a vote of confidence that the company is moving in the right direction, two credit ratings agencies recently upgraded Carnival's debt.
Looking back with the benefit of hindsight, it's incredible to see where Carnival is today, compared to where it was just five years ago.
Far from the destination
With shares up 222% in 36 months, Carnival is obviously on the right track. But with the stock still 56% below its record from before the health crisis, it will be a long journey to reach the previous high-water mark. Shares WOULD need to rise 110% from today's price.
The opportunity looks compelling. The price-to-earnings ratio is 16.5, which is reasonable given the strong momentum Carnival is experiencing.
Looking ahead, the industry favors ongoing growth. There is a lot of interest in cruise travel from younger customers, and from first-timers. The worldwide travel industry is so massive that it provides cruise lines with a huge opportunity, especially since these trips provide seemingly greater value than land-based options.
Wall Street consensus analyst estimates call for Carnival's earnings per share to increase by 23% between fiscal 2024 and fiscal 2027. The gains going forward will slow down from the past few years, as the business stabilizes following the pandemic. However, this is still a very encouraging outlook.
Investors interested in putting money to work in an under-appreciated, but more economically sensitive, part of the economy should take a closer look at Carnival. It might take several years to get there, but the stock is on the right course to one day eventually return to its pre-COVID highs.
