Carnival stock trades at half S&P 500 valuation despite slowing growth

Carnival (CCL) shares trade at 11.5 times earnings, roughly half the 21.9 multiple for the S&P 500, after losing 5.4% over the past twelve months while the broader index gained 17.3%. This valuation gap creates a divergence between viewing the company as a discounted profitable operator or a business with its peak growth period behind it.

The current price reflects a company generating substantial profits and cash. Carnival earned $3.1 billion in net income over the last twelve months, achieving an 11.4% net margin, up from 10.1% a year earlier. North America drives the majority of this revenue, generating $17.6 billion in fiscal 2025 compared to $8.5 billion from Europe. Free cash flow currently equals 8.8% of market value, supported by customer deposits that hit a record $7.6 billion in fiscal Q3 2026.

Growth rates have declined consistently over the past three years. Revenue expanded 5.2% over the last twelve months, down from a 7.1% gain a year ago and a 22% increase two years ago, falling short of the 11.5% three-year average. Despite this deceleration, operating margins have improved to 16.0% over the last twelve months, exceeding the three-year average of 15.4%. The primary challenge for future revenue is capacity, as management forecasts only a 0.5% capacity increase for 2027.

This limited capacity expansion forces reliance on pricing and occupancy to drive earnings, a strategy complicated by competitor pressure in the Caribbean and high leverage. Carnival carries debt equal to 69.7% of its market value, significantly higher than the 21% average for the S&P 500. To offset these headwinds, executives stated that operational improvements worth more than $150 million since June have fully offset higher expected fuel prices.

Management points to strong booking momentum for 2027, noting the year is already half booked with record occupancy and pricing levels. The company has raised its full-year 2026 adjusted earnings forecast to $2.24 per share from $2.22. In parallel, Carnival has returned cash to shareholders by repurchasing nearly $1.2 billion of stock over six months, representing about 3% of its market value.

Recent performance shows signs of continued slowing, with revenue growing 3.5% in fiscal Q3 2026, trailing the five-point-two-percent pace seen over the trailing twelve months. The next earnings report will test whether this growth stabilizes or declines further, while investors await management's earnings guidance for 2027, which has not yet been provided.