You've got to give credit where it's due. I was skeptical of Carnival Corp. (CCL -2.18%), the popular cruise line company, coming out of the COVID-19 pandemic. It had to go to great lengths to stay afloat when lockdowns virtually shut its business down and turned the company into a cash-burning machine.
Yet, Carnival is still here, years later. The company achieved record revenues in first-quarter 2025 and seems poised to continue sailing for years to come.
But does this mean investors should buy the stock? Here's where it may go over the next three years.
Sailing full-steam ahead
Not only has Carnival managed to stay afloat, but the business is booming right now. People are leaning hard into vacation spending, as evidenced by Carnival's banner Q1 2025 numbers, which included record revenue and customer deposits, indicating that Carnival could maintain its strong momentum.
Image source: Getty Images.
More importantly, Carnival is slowly addressing my concerns about the company, which center around its debt-saddled balance sheet. Carnival has paid its long-term debt down from $35 billion in 2023 to approximately $27 billion today.
Carnival is also refinancing debt to lower its interest expenses. While interest rates are higher now than they were several years ago, the company is still saving because it had to borrow at such high rates during the pandemic's height, when creditors weren't sure whether Carnival would survive. Recent refinancing has shaved roughly $100 million off its expected interest expenses for 2025.
As I said, give credit where credit is due. Carnival has done an excellent job rebounding from the pandemic lows.
The stock has risen over 50% in a year. Can it continue over the next three years?
Carnival still trades almost 70% off its all-time high. With the business doing well, it will continue to rocket higher, right? It's a little complicated. The share dilution and debt issued during the pandemic's height have warped things. In reality, its enterprise value is near its all-time high.
While the stock's returns may slow, Carnival could still perform well over the next three years.
Carnival's bottom line was meaningfully positive for the first time in several years in 2024. The company earned $1.44 per share. The stock's price-to-earnings (P/E) ratio of 16 is far below that of the S&P 500. However, that's probably fair given Carnival's debt and how capital-intensive the business is -- building and maintaining cruise ships costs billions of dollars annually.
Analysts estimate that Carnival will earn $1.86 per share this year, $2.14 in 2026, and $2.93 in 2027.
If the stock maintains its P/E ratio and Carnival hits those numbers, it could trade at approximately $47 three years from now. That would mean shares would double from their current price over the next few years.
What could sink this stock? Here is why investors should remain cautious
A key aspect of investing is trying to foresee what might go wrong. Carnival is doing great right now, but it's always risky to project that success years into the future.
Carnival sells a discretionary product. When people struggle financially, they aren't going to take as many vacations. I'm impressed by the strength of Carnival's customers, considering:
- Consumer sentiment is currently near multi-decade lows.
- Household credit card debt is at an all-time high.
- Federal student loan payments are resuming from their COVID-19 freeze.
It's unclear what effect these factors may have on Carnival's business moving forward, but it's clear that there are risks. The story can quickly change for the worse if Carnival's business cools off.
Carnival's comeback has impressed me, and the stock has upside if the business maintains its current momentum over the next few years. However, investors should probably still consider Carnival a risky stock, and remember that when deciding whether to buy shares.
