Why Is Wall Street Falling in Love With Carnival Stock Again?

As analysts start working on their "naughty or nice" list this time of year, Carnival Corp. (NYSE: CCL) (NYSE: CUK) is receiving a lot of bullish attention. At least six Wall Street pros boosted their price targets on the world's largest cruise line operator last week. Wells Fargo is kicking things off early this week, becoming the latest Wall Street firm to jack up its price goal on the shares before the market opened on Monday.

These aren't modest revisions. All but one of these seven recent moves are lifting Carnival's near-term upside by $5 to $8, a significant increase for a stock that enters this new trading week just above $25. Carnival has come a long way since the pandemic suspended operations for the industry. The shares have now more than tripled in price since the start of last year, but many analysts seem to think that the upticks will continue in 2025.

The case for buying Carnival stock

The economic climate is kind for cruise line stocks. It's not just pent-up demand driving an industry after a prolonged shutdown. We're now a couple of years into the recovery, and the numbers are already well ahead of the operator's pre-pandemic records. Revenue, average revenue per passenger, and customer deposits for future sailings have never been higher. Margins continue to widen as the bottom-line jumps outpace the top-line gains. Adjusted earnings per share soared 62% in Carnival's latest blowout quarter off a 15% year-over-year increase in revenue.

Analysts are trying to catch up to Carnival and its peers. It's been fun to watch as a Carnival investor. No matter what Wall Street pros seem to be projecting for the cruise line's financial performance, the global revenue leader keeps coasting past the analysts with ease. Just scan how Carnival has performed on the bottom line against market expectations over the trailing two years of reports.

Data source: Yahoo! Finance. EPS = earnings per share (adjusted).

Carnival is eight-for-eight over the past 24 months with the bottom-line beats, but it's not just that. Marginal surprises at the start of this run have expanded to at least double-digit-percentage beats in its last five financial updates. Carnival is reporting its fiscal fourth-quarter results later this week, on Friday morning. It should be pretty clear that analysts are scrambling to lift their targets heading into this week's report. They don't want to be caught short again, but history and momentum suggest it's going to be another repeat performance.

Image source: Getty Images.

Just keep swimming

Analysts began this year modeling a consensus average of 11% in revenue growth for Carnival for all of 2024. They were holding out for an adjusted profit of $1.28 a share. Three fiscal quarters into the year, those same Wall Street pros are now betting on adjusted earnings of $1.33 a share on a 16% leap in revenue. They see revenue slowing to less than 5% in the fiscal year that started earlier this month with $1.71 a share on the bottom line, but Wall Street pros have been consistently aiming too low for two years now.

Even if Carnival does wind up earning $1.71 a share in fiscal 2025, it still prices shares at a reasonable 15 times forward earnings. This is surprisingly low, particularly for a stock that investors could've bought for less than a third of its current price at the beginning of last year.

There could be hiccups. Wells Fargo's analyst update this morning suggests that there could be foreign exchange headwinds weighing on results in fiscal 2025. Carnival obviously wouldn't fare well if the economy sputtered or if geopolitical unrest percolated in any of its popular ports of call. The near-term outlook on the stock will continue to be bullish as long as customer deposits remain ahead of where they were a year earlier, but momentum is never written in permanent ink.

For now, it would be a mistake to bet against the bulls with the shares rallying and the "beat and raise" streak on a tear. There is still a lot riding on what Carnival reports and what it has to say in Friday morning's earnings call. Enjoy the pleasure cruise, but always know where the lifeboats are stationed.

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Wells Fargo is an advertising partner of Motley Fool Money. Rick Munarriz has positions in Carnival Corp. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.