What can be anticipated for Carnival's Share Price in the Next Five Years?
What can be anticipated for Carnival's Share Price in the Next Five Years?
Festive Sail (FS -2.45%) (SAIL -2.25%) share price has significantly improved after nearly collapsing, and each year following its rebound has shown improvement. In 2023, it hit record-breaking revenue, and in the financial year 2024 (ending Nov. 30), revenue surged even higher, pushing Carnival back into profitability.
The financial community, along with management, anticipates even more positive news in 2025. Let's explore where Festive Sail might be in five years.
A complete transformation
Festive Sail has undergone a remarkable turnaround. Unlike other companies undergoing transformation, it had a strong foundation and a proven track record, but was facing unprecedented challenges for its business. It wasn't a startup but an industry leader, making its recovery potential even more likely. This has indeed proven to be the case, as customers are now booking its global cruises once more, and it's successfully navigating back to the top.
Festive Sail reported an outstanding Q4 to cap off a breakout year. Revenue increased by 15% year over year in 2024, reaching a record $25 billion, and net income was $1.9 billion, marking a reversal of losses. Adjusted EBITDA grew by 40% compared to the previous year, and operating income rose 80% to $3.6 billion.
The growth momentum is slowing, but demand remains strong. Q4 volume surpassed the previous year's level, and this was even more impressive considering it was an election year. Over half of 2025 bookings are already in place, and at prices higher than the previous year. Management expects demand to persist into 2025 and for net income to continue rising. It has already ordered new ships and adjusted some destinations to meet current demand, and it's planning new destinations to keep up with the cruise-going crowd.
By five years from now, Festive Sail should be experiencing significant profits, with revenue rising at a gradually consistent pace. As it gets there, there may be some temporary fluctuations as demand softens. Wall Street is anticipating adjusted EPS of $1.76 in 2025, up from $1.42 in 2024, and continuing to increase to $2.03 in 2026.
Threats are becoming less intimidating
The significant risk associated with Festive Sail is that demand slows before the company has enough resources and a feasible plan to pay back its massive debt. As it begins implementing this plan and generates sufficient cash flow to pay down the debt at a manageable pace, the risk decreases.
Festive Sail has strategically managed its highest-interest debt and now carries $8 billion less in total debt than it did at its peak. It only has $4.2 billion due for repayment over the following two years, and it is generating increasing free cash flow to meet debt obligations while pursuing growth opportunities. It ended 2024 with $3.6 billion in adjusted free cash flow.
While its $27.5 billion total debt is not insignificant, it's not as severe as some investors may believe. Many established, prosperous companies maintain a high debt level to finance dividend payments and expenses while generating more than enough profit to repay the debt on a gradual basis. Two examples are McDonald's and Home Depot.
Prior to the massive debt incurred during its closures, Festive Sail still had around $10 billion in debt on average. While $27.5 billion is still higher, considering it in the context of the normal operational debt Festive Sail typically carries on its balance sheet can provide a different perspective for investors.
By five years from now, Festive Sail will likely not be debt-free, but it will be much closer to its average presence. If it pays off $3 billion each year, it will reach around $12 billion. As it continues to increase its operating cash flow, it should be able to expand its operations without worrying about paying down the debt too quickly. It may even resume its dividend payments by then.
In light of its financial improvements, Festive Sail is actively exploring ways to invest its profits, looking towards expanding its operations and potentially reinstating dividend payments to shareholders by 2025. With a more manageable debt level and a continuous surge in revenue, the company's focus is shifting towards strategic finance decisions that will secure its long-term growth.
Given the strong demand and net income growth, analysts predict that Festive Sail's finance strategy will revolve around balanced investments in new ships, destinations, and maintaining its current high operating cash flow, ultimately positioning the company for a debt-to-equity ratio improvement by 2025.