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Carnival (NYSE: CCL)(NYSE: CUK) stock has made a huge recovery since almost sinking, and every year since its rebound is getting better. In 2023 it achieved record revenue, and in fiscal 2024 (ended Nov. 30), revenue went even higher, and Carnival returned to profitability.

Management and Wall Street alike are looking forward to even better news in 2025. Let's see where Carnival could be in five years from now.

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Back in action

Carnival has become a real turnaround stock. Unlike other such stocks, it had a lot going for it beforehand but was facing unprecedented challenges for its business. It wasn't a young and untested company but an industry-leading giant, which made the turnaround potential more likely. That has proven to be the case now, as people go back to booking its global cruises and it navigates back to the top successfully.

Carnival reported an excellent fourth quarter to end a blowout year. Revenue increased 15% year over year in 2024 to a record $25 billion, and net income was $1.9 billion, reversing its losses. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 40% higher than last year, and operating income was up 80% to $3.6 billion.

The pace of growth is now slowing down, but demand is still strong. Fourth-quarter volume was even higher than last year, and that was doubly impressive because it's unusual in an election year. Almost two-thirds of 2025 occupancy is already booked, and at higher prices than last year. Management expects the strong demand to continue into 2025 and for net income to keep rising. It has already ordered new ships and changed some destinations to meet current demand, and it's planning new destinations to keep up with the cruise-going crowd.

In five years from now, Carnival should be highly profitable, with revenue increasing at a slower but steady pace. As it gets there, there could be some lumpiness as demand moderates. Wall Street is looking for adjusted earnings per share (EPS) of $1.76 in 2025, up from $1.42 in 2024, and rising further to $2.03 in 2026.

Challenges are looking less formidable

The big risk with Carnival is that demand slows down before the company has enough money and a viable plan to pay back its huge debt. As it begins to realize this plan, and it has enough cash coming in to pay down the debt at a steady and doable pace, the risk is getting lower.

Carnival has strategically paid off its highest-interest debt and already has $8 billion less in total debt than it had at its peak. It has only $4.2 billion coming up for repayment over the next two years, and it is generating increasing free cash flow to cover debt while pursuing a growth agenda. It ended 2024 with $3.6 billion in adjusted free cash flow.

While total debt of $27.5 billion isn't something to brush off, it's not as unreasonable as some investors might think. Many excellent, established companies keep a model of high debt to cover dividend payments and expenditures while they make much more than the debt to pay it off on steady terms. Two examples are McDonald's and Home Depot.

HD Total Long Term Debt (Annual) data by YCharts

Prior to the massive debt that came as a result of closing its operations, Carnival still had around $10 billion in debt on average. While $27.5 billion is still way above that, considering it in the context of the normal operational debt Carnival typically has on its balance sheet can help investors frame the total a little bit differently.

Five years from now, Carnival probably won't be debt-free, but it will be a lot closer to its average. If it pays off $3 billion annually, it will land at around $12 billion. As it keeps increasing its operating cash flow, it should be able to expand operations without worrying about paying off the debt in a timely manner. It could even start up its dividend by then.

Carnival has already returned to being a market-beating stock over the past two years, but that's been more about its rebound and less about its opportunities. Going forward, it could stand out as a market-beating stock because of its stellar and industry-leading business.

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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.