Market fears relating to omicron’s effect on Carnival (NYSE:CCL) have been exaggerated. CCL stock has fallen from $26.38 at a recent peak on Sept. 27 to $21.67 as of mid-day on Jan. 4.
This represents an 18% tumble in CCL stock from this peak. But that may not last very long, especially if analysts’ forecasts for the company come true.
As a result, expect to see CCL stock rebound before too long. This article will show how I estimate that CCL stock is statistically cheap.
Where Things Stand With Analysts’ Forecasts
Right now 13 analysts surveyed by Seeking Alpha forecast revenue for the year ending November 2022 to reach $16.23 billion. That is up from $1.91 billion for the year ending November 2021, and revenue of $1.29 billion for its fiscal Q4.
Moreover, the annual run rate revenue for Q4 works out to $5.15 billion. Therefore, analysts’ forecasts for $16.23 billion imply over 3 times the Q4 annualized run rate (i.e., $16.23 billion/$5.15 billion).
In addition, as Carnival has a market capitalization of $22.54 billion, its price-to-sales (P/S) multiple is just 1.4 times (i.e., $22.5 billion /$16.2 billion). Consider that this is substantially lower than the company’s historical P/S multiple.
Valuing Carnival Stock With Historical P/S Multiples
For example, prior to the Covid-19 breakout, Carnival had a market cap of $35.5 billion on January 13, 2020. This is because it had 684 million shares outstanding for the year ending November 2019 and its price on Jan. 13 was at $51.90. Since its revenue for the year ending November 2019 was $20.825 billion, its P/S multiple was 1.70 times (i.e., $35.5 billion /$20.8 billion).
Therefore, it looks like there is still plenty of room for CCL stock to move higher. For example, if Carnival were to trade at a 1.7 P/S multiple times the forecast 2021 sales of $16.23 billion, its market value will be $27.59 billion. That represents a 22.4% increase over its existing $22.54 billion market capitalization today.
That implies a potential target price of $26.52 per share, or basically near its peak on Sept. 27. And that is not it. If we look forward to analysts’ estimates for 2022 sales, the price target will be significantly higher.
Here is how the numbers work. As it now stands, 15 analysts surveyed by Seeking Alpha forecast November 2022 sales at $21.84 billion. That works out to a forecast sales increase of 34.6% over forecasts for November 2021. That is quite significant.
This implies a 35% higher stock price over our existing $26.52 price target, all other assumptions staying the same. This works out to a price target of $35.70 per share. That represents a potential upside of 64.7% over today’s price of $21.67.
In other words, there is a huge upside left for Carnival stock.
What to Do With CCL Stock
This analysis is simply based on the cold hard numbers using analysts’ estimates and the company’s own historical P/S multiple. As a value investor, you basically don’t need to know too much more than this.
That might sound a little heretical to investors who follow all kinds of fundamental and technical aspects of stock market investing. The simple truth is that the hard analysis of estimating the company’s potential revenue has already been done.
By the way, other analysts tend to agree with my price targets. For example, TipRanks.com reports that six Wall Street analysts who’ve written on the stock in the last 3 months have an average price target of $26.67. That represents a potential upside of over 23% from today’s price. That is also close to my price target of $26.52 based on the forecast for November 2021 revenue numbers.
Moreover, Seeking Alpha has a tab on Wall Street Ratings of 19 analysts. Their average price target is $27.39, and the high of their range is $39. The latter is even higher than my $35.70 price target based on November 2022 sales estimates and a 1.7 times P/S multiple.
Here is the bottom line. CCL stock is too cheap, based on the numbers. You are likely to make between 35% and 65% over the next year, based on my statistical valuation technique. That is a pretty good ROI for most investors, especially since the stock seems to be cheap now.
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 Newsbreak.com runs the Total Yield Value Guide which you can review here.
