Should You Buy, Sell or Retain Carnival Stock at a 12.94X P/E?

Core Insights - Carnival Corporation & plc (CCL) is trading at a forward 12-month price-to-earnings (P/E) ratio of 12.94x, which is below the industry average of 17.18x and the broader consumer discretionary sector's 18.39x [1] - CCL's shares have increased by 35.4% over the past year, outperforming the industry's growth of 8.8% [4] - The company has recorded strong bookings for 2026 and 2027, with two-thirds of 2026 already booked at high prices, indicating robust demand despite weak consumer sentiment [8] Valuation and Performance - CCL's forward P/E ratio is lower than its peers, even as its stock price surged [6] - The company achieved record revenues, EBITDA, and operating income in 2025 while maintaining unit cost growth below expectations [9] - CCL's operating and EBITDA margins expanded significantly year over year, with a return on invested capital exceeding 13%, the highest in nearly two decades [9] Demand and Pricing - Demand and pricing momentum are key tailwinds, with record bookings and strong customer deposits reinforcing confidence in future demand [8] - Higher close-in demand and robust onboard spending have positively impacted yields, with expectations for further same-ship yield growth in 2026 [8] Financial Health - CCL has reduced debt by over $10 billion from peak levels and achieved an investment-grade leverage ratio, allowing for dividend resumption and potential share repurchases [10] - The company is focusing on disciplined reinvestment in destinations to enhance guest experience and create long-term revenue upside [10] Cost Pressures - Cost inflation is a concern, with management guiding for cruise costs (excluding fuel) to rise about 3.25% year over year due to persistent inflation and increased expenses [11] - Regulatory costs are also increasing, particularly in Europe, which could impact earnings despite strong operational momentum [12] Industry Dynamics - There is industry capacity pressure, especially in the Caribbean, with double-digit capacity growth creating a tougher pricing environment [14] - CCL's guidance suggests more modest yield growth compared to recent years, indicating diminishing pricing leverage [14] Earnings Estimates - Projections indicate a 9.8% rise in fiscal 2026 earnings, with Zacks Consensus Estimates showing earnings per share of 2.47 for the current year and 2.76 for the next year [15][16] - Other industry players are expected to see higher earnings growth, with Norwegian Cruise, OneSpaWorld, and Royal Caribbean projected to increase by 26.9%, 14.7%, and 14.5% respectively in 2026 [18]