To The Moon

In the past five days, $Carnival(CCL)$ 's share price has risen by 12.67%.

US stocks rose on Friday after snapping a recent losing streak, as signs of cooling inflation and waning AI worries buoyed Wall Street optimism toward the tail end of a topsy-turvy week. The $S&P 500(.SPX)$ put on 0.8% and the $NASDAQ(.IXIC)$ gained over 1.3%, building on Thursday's roaring rally. The $Dow Jones(.DJI)$ climbed 0.3%.

The best-performing concepts is Cruise Concept. Considering the different perceptions of the stock, this time TigerPicks chose $Carnival(CCL)$ to have a fundamental highlight to help users understand it better.

In the past five days, $Carnival(CCL)$ 's share price has risen by 12.67%.

$Carnival(CCL)$

Carnival operates as a leisure travel company. Its ships visit approximately 700 ports under the Carnival Cruise Line, Princess Cruises, Holland America Line, P&O Cruises (Australia), Seabourn, Costa Cruises, AIDA Cruises, P&O Cruises (UK), and Cunard brand names. The company also provides port destinations and other services, as well as owns and operates hotels, lodges, glass-domed railcars, and motor coaches.

Holiday Season

Carnival is set to report earnings next week, just as the stock is making a nice bounce off recent lows around $26. The cruise line sector has been under pressure, but travel demand remains strong. My investment thesis is still Bullish on the stock after not rallying in the last quarter.

Carnival is cruising into the FQ4 earnings next week on December 19 with expectations for record results. The company reported solid FQ3 results and guided to solid numbers in the November quarter with the consensus analyst estimates as follows:

• EPS - $0.25, up 76% YoY

• Revenue - $6.38 billion, up 7.4% YoY

The large cruise line is expected to end the year with an adjusted EBITDA topping $7 billion and net income up 55% YoY. The big focus will be the FY26 guidance, especially considering the FQ4 results are part of the slow 6 months in the cruise line business.

According to Goldman Sachs analyst Lizzie Dover, the cruise line sector will face a tough H1 as follows:

Based on our industry channel checks, pricing and survey data, and bottom-up industry analysis, we expect H1 net yield growth to be pressured across the industry before ramping up in H2.

What appears to be different this time is that much of the growth is weighted to one company, with Norwegian Cruise Lines growing its Caribbean capacity 40% next year – an unusually large number to be absorbed in one year.

In essence, the easy money was made in the cruise line sector off the Covid lows. The business has soared since the lows to already far top the 2019 levels, though Carnival still trades far below the prior $60+ highs.

Back on the FQ3'25 earnings call, CEO Josh Weinstein seemed to suggest bookings for 2026 and beyond were actually strong:

In fact, booking trends have continued to improve since our last update, nicely outpacing capacity growth at higher prices and setting a record for bookings made on sailings 2 years out. And with nearly half of 2026 already on the books at higher prices, we feel pretty good about next year.

Carnival reported earnings at the end of September, and all of the Caribbean capacity additions were already in place. The company provided data that doesn't agree with the negative analyst commentary on 2026.

Moving Past The Debt Issue

The better news is that Carnival is quickly eliminating the ongoing debt issues since the Covid crisis. For FQ3, the company slashed net interest expenses to $317 million, down from $431 million in the prior August quarter.

The cruise line only added one ship in 2025, and no capacity is planned for 2026, allowing for another year for debt repayments. The company has cut leverage down to ~3.5x adjusted EBITDA with debt down to only $26.5 billion and cash on hand of $1.8 billion.

In fact, Carnival plans to repay $500 million in convertible debt, reducing the diluted share count by 13 million shares. The company has so improved the balance sheet, management is actually discussing capital returns in the near future.

The cruise line has already produced free cash flow of $2.6 billion in FY25 with operating cash of $4.7 billion and capital expenditures of just $2.1 billion. Royal Caribbean Cruises (RCL) recently announced a $1 quarterly dividend and an enhanced $2 billion share buyback, so Carnival is only catching up to the rest of the sector.

The stock now trades at only 11.5x FY26 EPS targets of $2.41, with EPS growth forecast at 11%. Carnival only trades at about 1x the growth rate, and the EV/EBITDA estimate slips towards 8x, so stock buybacks could be done at attractive valuations.

The biggest risk is that the Goldman Sachs analysts predictions on more dire pricing scenarios in 2026 actually come to fruition. The stock isn't close to expensive, and the company suggests the booking metrics for next year remain strong, but any change in the financials quickly becomes problematic for a cruise line with $24.7 billion in net debt.

Risks

External risks: The first one is the risk of dampening consumer sentiment, lowering demand for bookings. The second is the risk of fuel prices going up, as that's a major input cost.

Internal risks: Carnival has a large debt load sitting at roughly 6.5x TTM EBIT if including LT debt, current portion of LT debt, and capital leases. Management has indicated a goal of reducing this in their earnings calls, and as EBIT rises, the debt multiple will contract, but a risk nonetheless.

The other major risk is that although it's improving operationally, it has to compete against the RCL if it wants to get into the more premium market with larger ships and private destinations. And on price, lower cost options such as MSC (a European line moving into the American market) are undercutting price, yet not undercutting on quality and unique experiences with their own private destination (Ocean Cay) and mega ships for the American market (MSC World America - with more in the orderbook). So it puts Carnival in the middle, where it can't raise prices too much, yet can't continue to play the volume-based model it was before.

Takeaway

The key investor takeaway is that Carnival still offers great value for an ongoing growth story. The stock market feared a slowdown in sector demand, but the cruise line appears poised to remain in growth mode, with reduced capex boosting cash flows more going forward, leading to solid FY26 guidance.

Stock Price Forecast:

Here are the target price forecasts for the next 12 months from analysts.

Based on 18 Wall Street analysts offering 12 month price targets for Carnival in the last 3 months. The average price target is $35.84 with a high forecast of $42.00 and a low forecast of $28.20. The average price target represents a 15.17% change from the last price of $31.12.

Resource:

https://seekingalpha.com/article/4853102-carnival-cruising-toward-solid-fy26

https://seekingalpha.com/article/4851506-carnival-growth-and-multiple-expansion-fueled-by-the-pivot-to-yield

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