Carnival's Record 2025 Performance Highlights Recovery, but DeepValue Report Urges Caution Amid Risks

What happened

The Motley Fool article celebrates Carnival's fantastic fiscal 2025, citing record revenue, operating income, and customer deposits, along with reduced debt burden lowering future interest expenses. This aligns with the DeepValue master report's data showing Carnival's transition to record profitability and deleveraging, with 2025 adjusted EBITDA at $7.2 billion and net debt/EBITDA at 3.4x. However, the report critically notes that Carnival's leverage remains elevated around 3.4-3.8x, and it faces a 27% surge in Caribbean capacity that could pressure yields as peers add premium ships faster. Market sentiment is crowded with bullish expectations, and the stock price near $32 discounts much of the upside, offering limited margin of safety versus the report's attractive entry at $24. Thus, while the article portrays ongoing strength, the underlying risks from industry oversupply and balance sheet constraints highlighted in the report necessitate a tempered view.

Implication

The article's optimism reflects the crowded bullish sentiment, increasing vulnerability to any demand or pricing slippage in 2026. Carnival's debt reduction is a positive step, but leverage remains high, constraining financial flexibility if yields stagnate amid rising industry supply. Key risks include a 27% Caribbean capacity surge that could erode pricing power, coupled with Carnival's slower growth versus peers like Royal Caribbean. The DeepValue report's base case value of $34 implies minimal upside from current levels, with a bear case at $20 underscoring significant downside if net yields falter. Therefore, investors should wait for a pullback to around $24 or closely monitor indicators like customer deposits and net yield trends before considering entry.

Thesis delta

The new article does not shift the investment thesis; it merely reinforces the record performance already documented in the DeepValue report. The core concerns—elevated leverage, industry capacity risks, and crowded sentiment—remain unchanged, justifying the 'WAIT' rating. Accumulation is still recommended only at lower prices near $24 for a better risk-reward balance.