Carnival Corp. (CCL -1.13%) has been a pleasure cruise to many of its recent investors. Shares of the world's largest cruise line operator have coasted nearly 60% higher over the past year. The latest step up came earlier this week, when Carnival posted better-than-expected financial results.
Momentum has been strong for Carnival and its fellow cruise line stocks, but Tuesday's report wasn't perfect. Still, that doesn't mean the past year will be a hard act to follow, even if it's unlikely that the shares jump another 60% in the next 12 months. Let's take a closer look at Carnival's remarkable recovery, some impressive streaks it has going on, and ultimately where the shares could be trading a year from now.
A ship off the old block
Carnival has done nothing but crank out positive earnings surprises since resuming operations after the pandemic-related stoppage. Tuesday morning's update was the latest installment of humbling the Wall Street pros. Revenue for its fiscal second quarter that ended in May rose 9.5% to $6.33 billion, comfortably ahead of the 7.5% increase analysts were expecting.
The news was even better at the other end of the income statement. Analysts figured that Carnival's adjusted profit would more than double to $0.24 a share. It turned out to more than triple to $0.35 a share. Carnival has landed ahead of Wall Street profit targets for 11 consecutive quarters. An even more impressive streak is that Carnival's been serving up double-digit percentage beats in the the last eight reports.
| Period | EPS Estimate | Actual EPS | Surprise |
|---|---|---|---|
| Fiscal Q3 2023 | $0.75 | $0.86 | 15% |
| Fiscal Q4 2023 | ($0.13) | ($0.07) | 46% |
| Fiscal Q1 2024 | ($0.18) | ($0.14) | 22% |
| Fiscal Q2 2024 | ($0.02) | $0.11 | 650% |
| Fiscal Q3 2024 | $1.15 | $1.27 | 10% |
| Fiscal Q4 2024 | $0.07 | $0.14 | 94% |
| Fiscal Q1 2025 | $0.02 | $0.13 | 485% |
| Fiscal Q2 2025 | $0.35 | $0.24 | 46% |
Data source: Yahoo! Finance. EPS = earnings per share (adjusted).
These are some encouraging trends, but there's a shorter streak propelling Carnival higher this fiscal year. The cruising bellwether began its 2025 prognostications in December, modeling an adjusted profit of $1.70 a share for the fiscal year ending in November. It updated that target to $1.83 in March. On Tuesday, Carnival revised that bottom-line goal to $1.97 a share. Back-to-back guidance boosts create a more favorable valuation profile while also validating bullish momentum.
Despite the stock's strong run over the past year, Carnival is trading for a reasonable 13 times this year's refreshed earnings guidance. The multiple gets higher if we go by Carnival's debt-saddled enterprise value as the numerator, but it's a bargain under the conventional definition of using market cap to determine a P/E ratio.
Image source: Getty Images.
Coasting into 2026
Carnival is in a good place. All of the other metrics that matter in the industry -- net yields, capacity, advance bookings -- keep trending in the right direction. If investors feared that the current climate of geopolitical instability and fears of a slowing economy would eat into consumer demand for watery escapes, it didn't happen this time. Carnival was holding $8.5 billion in customer deposits by the end of the fiscal second quarter, higher than the previous quarter's record of $8.3 billion on its books a year earlier.
With all of this chatter about the tailwinds, let's not neglect the headwinds. Carnival continues to have a lot of long-term debt on its balance sheet, and it won't be pretty if borrowing costs start to move higher. One sticking point in Carnival's quarterly comments this week is that the volume of bookings for 2026 are in line for where it was looking out to 2025 at this point last year. The prices being paid remain at historical highs, but the layups that the industry has been scoring over the past couple of years could start to become more challenging shots.
Here's why I still believe Carnival will beat the market in the coming year: Net margin remains in the single digits outside of the seasonally potent current fiscal quarter. Its trailing net income margin was routinely in the mid-teens in the last few years before the pandemic. Even with slowing growth, Carnival has the wiggle room to continue to deliver analyst-thumping profitability gains. My bullish narrative may change in the near term if booking trends turn negative, but for now I'm still with the bulls steering the ship. Realistically speaking, a 10% to 20% gain in the next 12 months is more than feasible -- and it should be enough to beat the market. Keep enjoying the cruise, but keep an eye on the tide to make sure you know when it starts to turn.
