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Carnival Could Set Sail for $29 and Beyond

Carnival Corp (NYSE:CCL) stock continues its roller-coaster ride, especially now that the fiscal quarter for the period ending Aug. 31 is nearing its close. After closing 2020 at $21.66 per share, CCL stock rose to $31.31 on June 2. Since then it’s dropped to a trough of $19.72 on July 19 but has since risen to $22.83 as of Monday’s close. This puts it up 5% for the year-to-date.

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

Source: Flickr

However, I suspect that CCL stock is due for a major move up by the end of the year, especially if its prospects turn around. For example, on July 20, Carnival announced its entire fleet will return to service by the end of 2021. This will result in an “operating capacity” of 75% of its fleet by the 2021 year-end.

That release helped CCL stock to drift higher.

Issues at Carnival Corp

Recently the company received a big setback. On Aug. 13, CNBC reported that 27 people aboard a Carnival Vista cruise ship who were vaccinated tested positive for Covid-19.

All of the people, except for one, were crew members. The ship was docked in Belize. All 27 people were vaccinated and experienced mild or no symptoms, the country’s tourism board said. The company said all the people were put in isolation and close contacts were put in quarantine.

The fact is there were 2,895 guests and 1,441 crew on the ship that sailed from Galveston, Texas. So, this means that there were 4,336 people on board, and the 27 people represented less than 1% (i.e., 0.62%) of the total population onboard. That does not seem like a very high number.

The reality is that this situation was bound to occur, especially with the company’s large fleet. Moreover, the fact is that the recovery rate for Covid 19 is between 97% and 99.75%, according to WebMD. So even if the situation that occurred on Aug. 13 plays out on a large scale with Carnival, it might not be so bad in the long run, if the recovery rates follow these probabilities.

What Carnival Stock Is Worth

Analysts forecast 2022 earnings per share (EPS) will reach 34 cents and $1.98 for the year ending November 2023. Obviously, this assumes that there will be a huge “return to normal” aspect to the 2023 year earnings. This is dependent on the company’s full return to normal and full capacity in operations for the full year.

By that time, CCL stock will likely have a full valuation. Morningstar indicates that the average forward P/E over the past five years has been 13.96 times earnings. If we apply this to the forecast for 2023 earnings of $1.98 earnings per share (EPS), the target price is $27.64 (i.e., 13.96 x $1.98).

This represents a potential upside of 21.1% for CCL stock over its price of $22.83 as of Monday. Moreover, using its peak P/E ratio of 15.36 from 2017, the stock is worth $30.41, or 33.2% more. So, on average expect to see CCL stock rise between 21.1% and 33.2%, or 27% from here. That puts its expected value at around $29 per share.

What to Do With CCL Stock

The best time to buy a recovering value stock like this is when others are selling it. This is now, even though CCL stock has been on the mend lately.

Moreover, to be conservative let’s assume that it takes at least a year and a half to the end of 2022 for CCL stock to rise to $29. Here is what that means. Using a compounded annual growth rate (CAGR) calculation, the average annualized return is 20.33% per year. That means that you can expect to see CCL stock rise to $26.42 in a year and then $29 by the end of 2022 or shortly thereafter.

The point is to be patient.

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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