Carnival Stock Should Go Up By 28% With Positive Earnings Growth

Carnival Corp (NYSE:CCL) has been on something of a roller coaster ride this year. After ending last year at $21.66 per share, CCL stock shot up to $31.31 by the close of June 2. That represents a gain of 44.55%.

Carnival (CCL) cruise ship on water in front of beach with chairs

Source: Flickr

However, since then, the stock’s performance has slowly deteriorated, reaching a trough of $19.72 by July 19. As of the close of July 21, CCL stock is on the mend again, up to $23.19. This puts its performance slightly positive for the year (+7.1%). Not to worry, though, since I think we can make the case that CCL stock is worth 28% more at $29.71 per share.

Carnival and Covid-19

One of the concerns for travel stocks is whether Covid-19 cases, once again on the rise, will bring travel back down. That could theoretically put a damper on the return to normal operations for the cruise line.

However, on July 20, Carnival came out with a press release indicating it expects “the brand’s entire fleet returning to service by the end of 2021.” The implication of this is that 75% of its operating fleet will be in service by the end of the year. Obviously, management must have taken into account any possibility of a return of the coronavirus.

So where does this leave CCL stock from an investment point of view?

What CCL Stock Is Worth

Carnival came out with an upbeat and positive earnings release on June 24. For one, the cruise line said that it had $9.3 billion in cash and liquidity at its disposal. It said that, given its burn rate, the company had “sufficient liquidity to return to full cruise.”

Moreover, analysts now estimate that by 2022 earnings per share (EPS) will hit 35 cents and that by 2023 it will skyrocket to $1.87. So, at $23.19 as of July 21, CCL stock is trading on a forward price-to-earnings (P/E) multiple of just 12.4 times EPS. This is for the year ending Nov. 2023.

This essentially gives investors another chance to buy in at a cheap price. Here’s why. The market always discounts ahead at least 9 months to a year. So by mid-2022, the market will start to value CCL stock based on 2024 forecast earnings.

So, now at 12 times earnings a little over for 2023 the stock is relatively cheap. By mid-2022 it will likely be higher. I suspect that by then analysts will put a higher multiple on CCL stock, at least 15 to 20 times earnings.

For example, Morningstar shows that the average P/E ratio between 2015 and 2019 was 15.89 times. If we apply that to the forecast of $1.87 EPS for 2023, CCL stock will eventually trade at $29.71 on a fair value basis. That represents a potential gain of 28% over today’s price of $23.19 (July 21).

What To Do With CCL Stock

So far analysts seem to agree with me. For example, TipRanks reports that 9 analysts who have written on the stock in the last 3 months have an average price target of $29.29 per share. That represents a 26% upside in the stock, and also is very close to my estimate of $29.71 per share.

Similarly, Yahoo! Finance reports that 14 analysts have an average target of $28.05 per share. This is similar to Seeking Alpha, which indicates that 18 analysts write that CCL stock is worth $28.17.

So, in effect, this latest downturn in CCL stock represents a good buying entry point for investors that did not get in at the end of last year. A reasonable expected return is based on my estimates as well as many other analysts is 28%. That is a pretty good ROI for most investors.

On the date of publication, Mark R. Hake did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Mark Hake writes about personal finance on and runs the Total Yield Value Guide which you can review here.

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