Where Will Carnival Stock Be in 5 Years?

Carnival (NYSE: CCL), the world's top cruise line operator, suffered a severe slowdown during the pandemic's height as global travel and tourism ground to a halt. On April 2, 2020, its stock closed at just $7.97 per share -- its lowest closing price since the Black Monday Crash of 1987.

At the time, investors were worried that Carnival would struggle to stay solvent. But over the following five years, its stock more than tripled to its current trading price of around $27. Let's see why it bounced back -- and where it might be headed over the next five years.

Image source: Getty Images.

How did Carnival survive the COVID-19 crash?

In fiscal 2019 (which ended in November 2019), Carnival was still expanding its fleet, gaining more passengers, and keeping its occupancy rate above 100%. But in fiscal 2020 and fiscal 2021, its number of passengers and occupancy percentages plummeted.

Data source: Carnival. The fiscal year ends in November.

To survive that two-year downturn, Carnival suspended its operations in many markets, sold its older ships, and deferred its new ship deliveries. It also laid off and furloughed hundreds of employees, issued and sold new shares, took on more debt at double-digit interest rates, and extended its existing credit lines.

As a result, Carnival's total debt nearly tripled, from $11.5 billion at the end of fiscal 2019 to $33.2 billion at the end of fiscal 2021. But after the pandemic passed, its passengers returned and its occupancy rates rose again. By fiscal 2023, its total revenue and passengers carried finally surpassed its pre-pandemic levels from fiscal 2019. That growth continued throughout fiscal 2024.

In the first half of fiscal 2025, Carnival's total passengers rose 3% year over year, it maintained an occupancy percentage of 104%, and its revenue grew nearly 9%. It also reduced its total debt year over year to $27.3 billion -- but that still accounts for about 45% of its enterprise value. That ratio was only at 26% at the end of fiscal 2019.

What are Carnival's catalysts?

For fiscal 2025, Carnival expects its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) -- which excludes the interest payments on its debt, the depreciation of its ships, and other fluctuating expenses -- to rise 10%, versus analysts' expectations for 13% growth. It didn't provide any top-line guidance, but analysts expect its revenue to rise 6% in fiscal 2025.

Carnival also returned to profitability on a generally accepted accounting principles (GAAP) basis in fiscal 2024, and analysts expect its GAAP net income to improve 36% in fiscal 2025. Those rising profits are being driven by its higher average fares (aided by last-minute and premium cabin bookings), more onboard spending per customer, lower fuel costs, better operational efficiencies (especially in its new liquid natural gas (LNG) high-capacity ships), and reduced interest payments on its declining debt.

What will happen to Carnival over the next five years?

From fiscal 2024 to fiscal 2027, analysts expect Carnival's revenue and adjusted EBITDA to grow at compound annual growth rates (CAGRs) of 4% and 8%, respectively. That stable growth should be supported by the modernization of its fleet and the digitization of its services, which could widen its moat against competitors like Royal Caribbean (NYSE: RCL), and its expansion in Asia. As Carnival's business stabilizes again, it should gradually reduce its debt to more manageable levels. Once that happens, it might finally resume its buybacks and dividends -- which have both been paused since 2020 to preserve its liquidity.

With an enterprise value of $61.2 billion, Carnival trades at just 9 times this year's adjusted EBITDA. Royal Caribbean, which faces a lot of the same challenges but is shouldering less debt, trades at 15 times this year's adjusted EBITDA.

Assuming Carnival matches analysts' estimates, continues to grow its adjusted EBITDA at a CAGR of 8% from fiscal 2027 to fiscal 2030, and trades at a more generous 10 times its forward adjusted EBITDA by the beginning of the final year, its stock price could rise about 66% over the next five years. We should take that long-term estimate with a grain of salt -- since Carnival's recovery remains fragile -- but it could still have a lot more upside potential.

If you expect the cruise line market to keep heating up through the end of the decade, Carnival could be a great stock to buy. However, you should keep a close eye on its debt levels and on any hints of a global recession, which could sink the cruise line market again.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.