Carnival Corporation, with its operation of over 90 ships across eight different cruise lines, caters to a diverse demographic and holds the distinction of being the largest cruise line operator globally. The business faced severe setbacks during the pandemic, as operations were halted, resulting in significant net losses and an increase in debt. However, Carnival has experienced a recovery, attributed to strong consumer demand.
As of April 15, Carnival’s shares have climbed by 87% over the past two years. Nonetheless, ongoing economic uncertainties, fueled by concerns such as trade wars and geopolitical issues, have led the stock to trade 37% below its 52-week high. This situation presents a potential opportunity for investors considering a “buy-the-dip” approach, as there is considerable upside potential.
Carnival’s resilience is partly due to the durable demand for cruise travel. The pandemic period proved advantageous for internet-based businesses, but it was challenging for Carnival, as revenue dropped 73% and 66% in fiscal 2020 and 2021, respectively. Following the easing of restrictions and renewed consumer interest in travel, the company has experienced significant growth, with sales increasing 13-fold from fiscal 2021 to fiscal 2024.
The momentum has persisted, with Carnival achieving a 7.5% revenue increase in the first quarter of 2025, a record for the period. This growth is driven by strong demand, record net yields, and increased on-board spending. The company’s ongoing cost discipline has bolstered operating income, which grew by a striking 97% year-over-year to $543 million, another first-quarter record. The cruise option remains appealing due to cost advantages over land-based alternatives and its attractiveness to younger and first-time travelers.
Carnival is actively managing its financial health by refinancing $5.5 billion of debt to reduce interest payments. Despite these efforts, the company’s debt remains a concern for risk-averse investors who prefer less-leveraged balance sheets, with Carnival still holding $27 billion in long-term debt, accounting for 116% of its market capitalization.
Economic uncertainties pose additional risks, particularly if consumers reduce discretionary spending amidst predictions of potential recessions. Notably, major investment banks have highlighted a higher likelihood of an economic downturn in the U.S. this year. However, consumer sentiment appears positive, with a McKinsey study indicating plans for increased cruise spending in the upcoming months. Carnival has also revised its financial guidance upwards for fiscal 2025.
While there are inherent risks, Carnival presents a compelling investment opportunity. Shares are attractively valued, trading at a forward P/E ratio of 9.6. Wall Street analysts forecast a compound annual earnings per share growth rate of 20.7% from fiscal 2024 to fiscal 2027, suggesting that the share price is favorable.
Investors may find adding Carnival to their portfolios worthwhile. However, it is prudent to avoid relying solely on a single stock to achieve millionaire status. A diversified portfolio approach is recommended to mitigate risk and potential psychological stress. Carnival should be considered as part of a broader investment strategy.
