So far this year, Carnival Corp (CCL) has sailed in tangent with the broader market, to some extent. CCL stock was in rocky waters early on in 2016, but bottomed out and then began sailing higher. Yet, despite the recovery, Carnival is flat over the last month and has actually lost some steam over the last few days.
Still, investors should be optimistic that Carnival stock will begin cruising higher soon enough.
Carnival, for those less familiar, is one of the world’s largest cruise vacation companies, carrying 47% of all cruise passengers on its portfolio of more than 100 ships under nine different brand names.
Carnival Has an Impressive Track Record
A couple of weeks ago, CCL stock cooled off as oil prices rose. At the time, I said there’s no question that gasoline is a major expense for CCL because of its large fleet of cruise ships, but that I didn’t think the price increase off ultra-low levels represented much of a threat to earnings. Plus, Carnival has improved fuel efficiency in recent years.
I still feel the same way, but do acknowledge that it can affect sentiment around the stock. The good news here is that stockpile data has sent oil prices back down. That should be a boon to shares.
Besides, regardless of oil prices, earnings are on tap to be solid. For starters, the company has an impressive earnings track record, with four straight beats in the book. While earnings took a hit back in 2012 following the Costa Concordia disaster (a Carnival ship captain’s negligence caused an underwater collision that killed 32 passengers), things have come roaring back.
Expect that to continue, especially considering analysts have held their estimates steady or moved higher for current and coming quarters and years over the last three months, even as oil prices fluctuated.
CCL Stock Has Solid Fundamentals
In fact, growth is expected to tally 60% this quarter and 52% next quarter. There’s a good deal of visibility to these estimates, given that the majority of this fiscal year’s cruises have already been booked. Longer term, EPS growth should smooth out to 18%, which is appealing considering CCL stock is trading for just 12 times forward earnings, despite recent gains.
That translates to a PEG ratio of 0.81, which is mouth-watering for being less than 1, and even more mouth-watering when compared to the average for Carnival’s industry (1.83), sector (1.54) and and the broader market (1.92).
Oh, and the discount gets even sweeter considering CCL stock offers a solid 2.4% dividend yield and boasts strong free cash flow ($1.9 billion last year, excluding working capital changes).
Add it up, and CCL stock has strong fundamentals, a sweet yield and impressive growth on tap. Meanwhile, the stock is cheap even in the face of recent gains — so we can expect those gains to continue.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
