The past few weeks have been a bon voyage for investors in cruise line stocks. Carnival Corp. (CCL 6.20%) -- the country's largest player by revenue -- has seen its shares coast 10% higher over the past month. This would be cause for a party on the pool deck, but comparison is the thief of joy sometimes.
Rival Royal Caribbean -- the country's largest player by market cap -- is up a more robust 13% in the same time. Even historical laggard Norwegian Cruise Line is up a hefty 18% over the past month. The three largest cruise line stocks are moving higher after taking on water in the previous months, but does Carnival have a shot of leading the rally heading into next year instead of merely tagging along?
Carnival stock investors won't have to wait long to get a crack at taking control of the bullish turn. It reports its fiscal fourth-quarter results on Friday morning. Following a disappointing third-quarter update that triggered a sell-off, a shot at a redemption story fits the narrative of the holiday season. Let's see if Carnival can stick the landing.
Image source: Getty Images.
Riding the wave
Analysts have healthy growth expectations as Carnival steps up this week with fresh financials. The $6.38 billion that Wall Street pros are modeling for the fiscal quarter that ended in November would be a 7% increase. This is a step up from the mere 3% year-over-year increase it posted three months earlier. This would stretch Carnival's streak of record results for a particular quarter to 11 periods.
The growth should be even better on the bottom line. Analysts are targeting a profit of $0.25 a share, landing nearly 80% above the $0.14 a share it posted a year earlier. If that sounds ambitious, remember history favors the aggressive. Carnival has consistently topped the market's quarterly income expectations for more than two years.
| 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% |
| Fiscal Q3 2025 | $1.32 | $1.43 | 9% |
Data source: Yahoo! Finance. EPS = earnings per share (adjusted).
Navigating the uncertain waters
Carnival's 3% revenue increase the last time out was potentially problematic, and not just because it's not ideal for a growth stock to merely keep pace with inflation. The modest 5% top-line growth that rivals Royal Caribbean and Norwegian would post a month later didn't help. This was also the seasonally potent summer quarter, making a slowdown look even worse.
Royal Caribbean and Norwegian are also expected to show improving revenue growth in their next quarterly updates. The market is banking on gains of 14% and 11%, respectively. Take a step back, joy thief. This is only to illustrate that growth is expected to accelerate again -- even if it finds Carnival in the back of the pack again.
In defense of Carnival's third-quarter showing three months ago, it did exceed expectations. It once again raised expectations across all of the metrics it publicly forecasts. The same company that initially braced investors for a fiscal 2025 profit of $1.70 per share has seen that per-share guidance rise to $1.83, $1.97, and now $2.14 with every passing report.
Even if it simply lands on its guidance, which it has gracefully overshot every quarter since returning to full operations after the prolonged COVID-19 shutdown, Carnival would be trading for just 13 times trailing earnings by the end of this week. That may seem cheap, but Norwegian is far cheaper.
Beating expectations wasn't enough last time. It might not be enough this time around. Carnival will have to show strong bookings ahead of the 2026 season. Its net yield -- a popular industry metric that measures adjusted gross margin per available passenger cruise day -- will need to exceed its already record results.
Could this be the moment that Carnival follows Royal Caribbean in reinstating its quarterly dividend? It can do a lot worse than following in the sandy footsteps of the market darling that commands a premium valuation over Carnival for some pretty good reasons. If Carnival wants to keep the recent upticks coming, it's going to have to show the market something it hasn't seen before.
