Carnival Will Survive the Latest Covid-19 Variant Omicron

Carnival Corp (NYSE:CCL) will survive the latest Covid-19 variant scare. Many travel stocks, including CCL stock, took a plunge on Friday, Nov. 26, after news came spread that this Covid-19 strain, named Omicron, could possibly be impervious to existing vaccinations.

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

Source: Flickr

According to The Wall Street Journal, Omicron’s mutations could make it more transmissible and could help it evade some of our vaccine boosted immune system responses. However, markets and travel companies like Carnival can survive this.

For one, Pfizer (NYSE:PFE) and BioNTech (NASDAQ:BNTX) have both indicated they can “quickly adjust their mRNA vaccine to combat the new variant if necessary,” according to the WSJ. In addition, CNBC reported on Sunday, Nov. 28, that Moderna (NASDAQ:MRNA) can have a reformulated vaccine ready against Omicron by early next year, according to CNBC.

Fears Are Misplaced

So market fears have been exaggerated. It looks like the 11% tumble in CCL stock on Nov. 26 to below $18.00 ($17.95) may have been overdone.

In fact, the stock’s negative performance year-to-date (YTD) is really unwarranted. CCL stock ended last year at $21.66, so it is only down $3.71 YTD as of Friday, Nov. 26, or -17.1%.

In addition, that is not likely to last, given the strides the company has made so far. There are good odds now that it is likely that a new Covid-19 variant can be dealt with by the vaccine companies.

As a result, I suspect the market may begin to refocus on the positives for Carnival. For example, in the company’s latest Q3 earnings update it reported that voyages turned free cash flow (FCF) positive.

Moreover, the company said cumulative advanced bookings for the second half of 2022 “are ahead of a very strong 2019.” It also said that it expects that voyages to continue to be cash-flow positive.

Finally, the company said it is returning more ships to service, albeit at an ongoing cost of reviving crews, doing maintenance and supplying the ships, etc. The bottom line is that it hopes to have its full number of ships in service by next spring.

Where This Leaves CCL Stock

If that happens, you can bet that CCL stock won’t be at today’s price. It will be much higher. For example, in the past, I argued that the stock is worth $31.94.

This was based on an average 2023 forecast of analysts by Seeking Alpha for 2023 of $2.01 in earnings per share (EPS) and a multiple of 15.89 times. That was based on Morningstar’s average P/E from 2015 to 2019 for CCL stock.

However, recently the Seeking Alpha average EPS for 2023 fell to $1.97. Therefore, the target price also falls to $31.03 at 15.89 times earnings. And to be even more conservative at 15 times EPS, the price target becomes $29.55. In fact, we can probably just round it off to $30.00, or around 67% over today’s price.

So, even being conservative, we see that CCL stock is worth a good deal more than its present price. That should give some hope to existing shareholders. And with potential CCL stock buyers, it shows that the shares are clearly selling at a bargain price.

And that is what value investors typically look for. They want to see a bargain price, contrarian indicators, like people selling their positions at the bottom, and financial positives. Carnival stock has all of these. It means that value investors will likely flock to Carnival stock during these kinds of panics.

Even if we cut out forecast return in half to 34%, the price target would be 24.00 per share. That would be a great return for most investors.

On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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


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