Carnival's Q4 2025 Earnings Call Reinforces Recovery Amid High Leverage and Valuation Concerns

What happened

Carnival Corporation held its Q4 2025 earnings call on December 19, 2025, discussing financial performance for the quarter and full year. The DeepValue master report highlights that Carnival has achieved record revenue and profitability post-pandemic, with $25 billion in revenue and $1.9 billion net income in 2024. However, leverage remains elevated at net debt/EBITDA of 4.44x and interest coverage of only 3.0x, indicating ongoing balance sheet vulnerability. Valuation is stretched, with the stock trading at approximately 14x earnings and 125% above a free cash flow-based DCF estimate, implying limited margin of safety. The earnings call likely emphasized strong demand and deleveraging efforts, but fundamental risks from industry capacity growth and environmental costs persist.

Implication

Carnival's operational recovery is positive, but high leverage at 4.44x net debt/EBITDA leaves the balance sheet vulnerable to any demand slowdown. Industry capacity is growing 6-6.5% annually through 2026, potentially pressuring yields and occupancy just as Carnival needs sustained high pricing to delever. The stock's valuation at 14x earnings and a 125% premium to DCF suggests the market has already priced in an optimistic recovery, offering little margin of safety. Key risks include refinancing $8.7 billion in 2028 maturities and rising environmental compliance costs, which could strain cash flow. Until leverage improves significantly or the stock price pulls back, investors should avoid new positions and consider trimming existing holdings.

Thesis delta

The Q4 2025 earnings call does not shift the DeepValue thesis of a potential sell; it reinforces existing concerns about high leverage and valuation. The report's stance remains unchanged, as the call likely confirmed strong demand but underscored ongoing balance sheet risks and stretched pricing. Investors should monitor for tangible progress in deleveraging or a valuation reset to reassess the investment case.