Stock with Potential Growth, Potentially Overlooked by Wall Street
Carnival Corporation, the world's largest leisure cruise company with a market cap of over $30 billion, is poised for moderate growth in sales and profits in the near future, according to analysts. The company's improving operational performance and strategic debt management are key drivers of this optimism.
The Cruise Lines International Association predicts a record-breaking 37.7 million people will take an ocean cruise in 2025, up 9% from 2022. This growth is reflected in Carnival Corp.'s first-quarter revenue of $5.8 billion, up 7.5% year over year, and doubled operating income. The company is generating approximately $25 billion in annual revenue.
Cruisers are opting for longer cruises and more total cruises, a trend that Carnival Corp. is capitalizing on. The company's fleet consists of 29 boats and several other brands, totaling 93 ships. Carnival Corp. expects to take delivery of three more ships by the end of 2028, and plans to receive two new boat deliveries per year starting in 2029.
Advanced bookings for the rest of the fiscal year remain at record highs, indicating a continued demand for cruises. However, the industry's lack of boats is a significant impediment to business growth.
Despite this optimism, there are concerns over Carnival’s high debt levels. During the COVID-19 pandemic, the company took on about $24 billion in new long-term debt. As a result, Carnival Corp.'s shares still trade below their pre-pandemic peak due to investor fear of the pandemic's lasting impact. The company is currently generating roughly $2 billion in annual interest payments.
However, Carnival’s recent successful $3 billion senior unsecured notes issuance to refinance and repay secured debt significantly enhances its financial resilience. This debt refinancing, combined with operational improvements such as fleet modernization and revenue recovery, has led analysts to be cautiously optimistic about Carnival’s future profitability and sales growth.
Analysts expect Carnival to report a profit of $1.31 per share for Q3 2025, a 3.2% increase from $1.27 in the year-ago quarter. For the full fiscal year 2025, analysts forecast EPS of $2.00, a strong 40.9% rise from $1.42 in 2024, with further EPS growth anticipated in 2026 by about 14% to $2.28 per share.
This optimism is tempered by some market caution over Carnival’s high debt levels, but the company’s declining forward PE ratios, from 13.01x in 2025 to 7.63x by 2029, signaling market expectations of sustainable earnings growth with a projected EPS compound annual growth rate (CAGR) of +14.25% through 2029.
Additionally, Carnival’s credit rating was upgraded to Ba2 by Moody’s, underscoring improved credit profile and potentially lower borrowing costs. The global leisure cruise market is projected to grow at an annualized pace of nearly 6% through 2034, with the number of cruisers expected to reach 41.9 million in 2028.
In conclusion, analysts are cautiously optimistic that Carnival’s financial condition will strengthen due to strategic debt refinancing, operational recovery, and market positioning in a consolidating cruise industry, fostering modest but steady sales and profits growth despite ongoing market concerns regarding its debt levels.
The strategic debt refinancing by Carnival Corp. has boosted analysts' confidence in the company's financial resilience, positioning it for steady sales and profits growth. Additionally, the growing global leisure cruise market, with a projected annual growth rate of nearly 6%, reinforces this optimistic outlook.
Investors are closely monitoring Carnival's debt levels, as the company's heavy reliance on debt was accentuated during the pandemic. However, the declining forward PE ratios and the upgraded credit rating demonstrate the company's improving financial position and potentially lower borrowing costs.
