Carnival
Scale wins but leverage still anchors returns
Carnival has exited its post‑pandemic recovery phase and is now compounding from a position of record profitability and cash generation.
Fiscal 2025 delivered record revenue of 26.6 billion dollars, net income of 2.76 billion dollars, adjusted EBITDA of 7.18 billion dollars, and operating cash flow of 6.22 billion dollars against 3.61 billion dollars of capital expenditures, implying trailing free cash flow near 2.61 billion dollars and an FCF margin just under 10 percent.
Net debt to adjusted EBITDA improved to 3.4x, interest expense fell materially year over year, and the board reinstated a quarterly dividend of 0.15 dollars starting February 27, 2026. Management also proposed unifying the dual‑listed structure and redomiciling to Bermuda to simplify governance.
Demand indicators remain favorable: record net yields, record customer deposits, and 2026 bookings in line with 2025 at historically high prices. Carnival’s exclusive destination strategy is now tangible with Celebration Key opening in July 2025 and already surpassing one million guests, complementing private‑island assets across brands.
These drivers support mix and onboard revenue growth, though we note early consumer feedback on crowding and food quality variability at the new destination alongside continued competitive comparisons to rival private‑island experiences.
Despite progress, this remains a cyclical, capital‑intensive business exposed to fuel, weather, geopolitics and regulation. European maritime carbon costs under the EU ETS phase‑in and FuelEU rules are stepping up through 2026, increasing unit costs that must be offset with pricing and efficiency.
We see improved balance sheet resilience and better capital discipline, but the structure still carries high absolute debt and ongoing ship and destination capex. Our preference is to underwrite this as a capable operator in a good industry upswing rather than a classic quality compounder.
Does Carnival have a strong competitive moat?
We assess Carnival’s moat as narrow and primarily rooted in efficient scale, brand intangibles, and some cost advantages. Component scores and weights: Efficient scale 70/100 (weight 35%) given global berth access, multi‑brand fleet density, and scarce private‑island capacity that is difficult to replicate at scale.
Intangible assets 65/100 (weight 20%) via a portfolio of nine brands with distinct positioning (Carnival, Princess, Holland America, Cunard, AIDA, Costa, P&O UK, Seabourn) and destination rights such as Celebration Key, Half Moon Cay and Princess Cays.
Cost advantage 60/100 (weight 25%) from purchasing leverage, fuel efficiency programs, LNG‑capable ships, and shared services across brands. Switching costs 30/100 (weight 15%) are modest because consumers can readily choose alternative leisure options. Network effects 20/100 (weight 5%) are limited.
The portfolio breadth and destination control support yield, but rising regulatory costs and ongoing competitive responses from peers constrain durability.
Does Carnival have pricing power in its industry?
Recent net yield strength and occupancy above 100 percent demonstrate the ability to take price while maintaining demand, aided by exclusive destinations and onboard monetization. 2025 net yields set records and 2026 is guided to exceed 2025 on a like‑for‑like basis.
That said, cruising remains price‑sensitive versus land alternatives and peers’ private‑island assets cap unilateral pricing. Regulatory costs (EU ETS/FuelEU) will rise in 2026, testing pass‑through. Overall we see moderate pricing power that is better than historical averages but not monopolistic.
How predictable is Carnival's business?
Booking visibility is strong: record deposits and a long booking curve, with 2026 cumulative bookings in line with 2025 at historically high prices. Yet exogenous shocks (fuel prices, extreme weather, port/geopolitical disruptions, pandemics) and macro sensitivity make results inherently cyclical.
The business has improved structural resilience post‑refinancing, but we do not view cash flows as comparable to toll‑booth franchises.
Is Carnival financially strong?
Carnival generated 6.22 billion dollars of operating cash flow and about 2.61 billion dollars of FCF in FY2025, reinstated its dividend, and finished with total debt of 26.64 billion dollars and cash of 1.93 billion dollars.
Net debt to adjusted EBITDA improved to 3.4x as refinancing reduced interest expense from 1.76 to 1.35 billion dollars year over year. Balance‑sheet flexibility is meaningfully better, but absolute leverage is still high and ongoing capex needs remain significant.
How effective is Carnival's capital allocation strategy?
Recent decisions show improved discipline: measured net capacity growth (roughly low single digits), focus on same‑ship yield initiatives, sale of older tonnage, consolidation of P&O Australia into Carnival Cruise Line, and selective newbuilds such as an additional Excel‑class ship for 2027. The 2025 refinancing campaign reduced secured and high‑coupon debt and simplified the stack.
Dividend reinstatement signals confidence but must not crowd out deleveraging. Overall track record is mixed given pandemic‑era dilution, but the last 24 months show better judgment.
Does Carnival have high-quality management?
CEO Josh Weinstein and CFO David Bernstein have repeatedly exceeded guidance in 2025, improved leverage metrics to investment‑grade thresholds, and moved to streamline governance by proposing unification of the dual‑listed structure. Execution on destination development (Celebration Key) and cost control underpins credibility.
Not founder‑led and with limited insider ownership compared to our highest‑conviction compounders, but performance trajectory is positive.
Is Carnival a quality company?
Carnival is an average quality company with a quality score of 52/100
- TTM free cash flow about 2.61 billion dollars on 6.22 billion dollars of operating cash flow and 3.61 billion dollars of capex; adjusted EBITDA 7.18 billion dollars.
- Deleveraging on track: net debt/adjusted EBITDA 3.4x; interest expense down versus 2024; Fitch recognized investment‑grade leverage metrics; dividend reinstated.
- Exclusive destinations and brand scale support yield and onboard monetization; Celebration Key opened in 2025 and passed one million guests within five months.
- Regulatory and fuel headwinds rising in Europe as EU ETS/FuelEU costs scale to full scope by 2026, requiring consistent price/mix and efficiency gains.
What is the fair value of Carnival stock?
Is Carnival a good investment at $30?
The following analysis is provided for informational and educational purposes only. It does not constitute financial advice, investment advice, or a recommendation to buy or sell any security. The opinions expressed are based on publicly available information and historical data. Beanvest and its contributors may hold positions in the securities mentioned. Investors should conduct their own due diligence or consult a licensed financial advisor before making any investment decision.