Vacation-hungry travelers propelled Carnival (CCL -5.46%) to record-breaking revenue and cruise bookings in 2024. The company is capitalizing on an industry boom, with data showing a steady rise in first-time and repeat cruisers.

Despite the stock returning a spectacular 71% over the past year, Carnival shares are still down about 65% from their all-time high in 2018, reflecting the deep restructuring the company underwent during the COVID-19 pandemic. However, with an earnings growth outlook from the cruise line giant that is now stronger than ever, there are several reasons to believe the rally can keep going.

Let's discuss why Carnival stock could make a great addition to your portfolio in 2025.

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Carnival earnings momentum

Much has changed for Carnival in the last five years as the company navigated through the historically challenging period when the cruise industry was effectively shut down for 15 months between 2020 and 2021. The need to raise billions of dollars in capital through debt financing while more than doubling its outstanding share count to stay afloat helps explain the stock price collapse over the period. The good news is that the latest trends suggest the company has successfully moved on from those headwinds.

For the fiscal year 2024 ended Nov. 30, 2024, Carnival's total revenue reached $25.0 billion, up 15% year over year and 20% above the pre-pandemic benchmark. A big part of the story is the ongoing effort to add capacity, which has grown by 9% since 2019 by launching new ships while also modernizing its existing fleet into a more premium product.

Image source: Getty Images.

Carnival's newer, larger, and more feature-packed cruise vessels are drawing a loyal following of cruisers who are more than happy to pay higher prices for their dream vacation. Even as costs increased in recent years, steps to improve financial efficiencies have translated into higher profitability. In 2024, adjusted earnings per share (EPS) turned decisively positive to $1.42, compared to just a breakeven of $0.00 in 2023.

According to Wall Street consensus estimates, the company is forecast to deliver an impressive 23.2% EPS growth this year. Considering the low level of remaining inventory to sell for 2025 sailings, that target appears well on track.

Data source: Yahoo Finance. YOY = year over year.

Several catalysts into 2025 and beyond

Anticipation is building for Carnival to open Celebration Key as its newest exclusive destination in the Caribbean in the second half of 2025. The company calls it a game-changing asset, designed to host up to 2 million guests annually at launch and scaling to 4 million by 2028. The resort-style center joins an extensive network of similar but smaller company-owned ports of call in the region, such as Princess Cays, Half Moon Cay, and Mahogany Bay.

This concept works to increasingly keep guests within Carnival's ecosystem, including brands like Princess and Holland America, during a cruise voyage. By doing so, the model generates multiple revenue streams beyond core ticket sales, including upcharges from highly popular cabana rentals, drink packages, excursions, and other options that serve as growth drivers.

A separate catalyst for Carnival stock is its ongoing progress in strengthening its balance sheet, which is supported by strong free cash flow and underlying earnings. The company has managed to reduce its total debt balance by more than $8 billion from the 2023 peak. Further repayments are expected to significantly reduce its interest expense going forward.

These trends could go a long way in supporting a higher valuation for the stock price, potentially allowing it to reclaim its pre-pandemic levels in the future. Carnival shares currently trade at 15 times its 2025 estimated EPS as a forward  price-to-earnings (P/E) ratio that stands out as particularly attractive when compared to competitor Royal Caribbean Cruises, which has a forward P/E closer to 18.

Carnival's ability to execute its long-term strategy and consolidate market share makes the company well positioned to reward shareholders.

The big picture for investors

I'm bullish on Carnival and believe the stock should be a strong performer in 2025 amid a resilient economic environment as an operating tailwind. The stock can work for investors within a diversified portfolio to offer exposure to themes in leisure, travel, and consumer spending.