Carnival’s Impressive Turnaround: A Bright Future Ahead
The cruise industry giant, Carnival, has made a remarkable comeback since its near-collapse. With each passing year, the company is getting stronger, and its latest fiscal year (ended November 30) saw record-breaking revenue and a return to profitability. As the company looks ahead to 2025, management and Wall Street analysts are optimistic about its future prospects.
A Turnaround Stock Like No Other
Unlike other turnaround stocks, Carnival had a strong foundation to begin with, but faced unprecedented challenges. As an industry leader, its potential for a successful turnaround was higher. And now, with people flocking back to its global cruises, the company is navigating its way back to the top.
Record-Breaking Performance
Carnival’s fourth-quarter results were impressive, with revenue increasing 15% year over year to a record $25 billion. Net income reached $1.9 billion, reversing its losses, and adjusted EBITDA rose 40% higher than last year. Operating income was up 80% to $3.6 billion. While growth may be slowing down, demand remains strong, with fourth-quarter volume higher than last year.
Strong Demand and Expansion Plans
Almost two-thirds of 2025 occupancy is already booked, and at higher prices than last year. Management expects strong demand to continue into 2025, with net income set to rise. To meet current demand, the company has ordered new ships and changed some destinations, with plans to introduce new destinations to keep up with the cruise-going crowd.
A Profitable Future Ahead
In five years, Carnival is expected to be highly profitable, with revenue increasing at a steady pace. While there may be some lumpiness as demand moderates, the company’s growth agenda and increasing free cash flow will help it pay down its debt. Wall Street analysts predict adjusted EPS of $1.76 in 2025, rising to $2.03 in 2026.
Managing Debt
The company’s huge debt is a significant risk, but Carnival has strategically paid off its highest-interest debt and reduced its total debt by $8 billion. With only $4.2 billion coming up for repayment over the next two years, and generating increasing free cash flow, the risk is decreasing. Many established companies, like McDonald’s and Home Depot, maintain high debt levels to cover dividend payments and expenditures while generating more than enough to pay off the debt.
A Bright Future Ahead
In five years, Carnival will likely be closer to its average debt level, with a stronger balance sheet and increased operating cash flow. This will enable the company to expand operations without worrying about debt repayment. It may even restart its dividend payments. With its stellar business and industry-leading position, Carnival has the potential to stand out as a market-beating stock in the years to come.
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