Carnival Corp. (NYSE: CCL) is expected to benefit from increasing cruise popularity and an increase in profits. CCL stock could see a 24% increase from this point. The stock is now moving up from its March 7 trough of $15.53, This is after the stock had dropped sharply from $26.17 on September 28 to $19.59 as of March 30. This represents a decrease of 25.1% in the last six months. However, the stock is now on the rise.
What’s Happening At Carnival Corp
Investors have good reason to feel optimistic about the future based on Carnival’s February 22 update on earnings for its fiscal Q1 ended Feb. 28, and its refreshed 2022 outlook. Carnival claims that 75% of its cruise capacity has been used. It also expects that the entire capacity will be available by the summer when it generates most of its cash flow.
Carnival also stated that its adjusted EBITDA (earnings without interest, taxes, and amortization) will be positive by the start of its summer season. EBITDA, a type of cash flow measurement, does not include non-cash expenses normally included in the income statement. This allows management to assess their ability to pay off their debts.
Carnival claims that it now has over $7.2 billion of liquidity. It also stated that it had a higher revenue per cruise day than in 2019, and this was despite having less liquidity. This is an important achievement, as 2019 was the last year that Covid restrictions had hit the company so severely.
Analysts now predict that Carnival will generate $14.2 billion in revenue for the year ending November 30, 2022. This is more than 2.5 times the $5.595 trillion in sales that Carnival made in 2020. It will be less than the $20.8 billion Carnival earned in 2019.
CCL stock has a market capitalization now of $23.0 million as of March 30, however. It trades at 1.62 times its forward sales. This can be easily seen by multiplying $23.0 billion with analysts’ 2022 sales forecast of $14.2 billion. This multiple is not very high and could indicate that CCL stock might be undervalued.
Valuing CCL Stock
Morningstar reports Carnival stock traded with a price to sales (P/S), multiple that ranged from 1.29x up to 2.72x in the past five years. The average multiple was 1.95x or approximately 2 sales during this period.
This implies that CCL stock may be too expensive compared to its valuation history. Based on this assessment, CCL stock could increase 23.5% to 2.62 sales or more.
If we multiply Carnival’s $14.2 billion forecast sales by two times, we get a target value of $28.4 trillion. This is a 23.5% increase over the $23 billion market capitalization. This makes it worth $24.19 per share
Analysts are still projecting net income losses for CCL for 2022, however. CCL stock cannot be valued using a price/earnings approach.
It is possible that Carnival could become free-cash-flow positive by the end. Among others, Barron recently wrote that Carnival’s competitor, Norwegian Cruise Line Holdings, is expected to be profitable by the second half of 2022.
How to Use CCL Stock
My assessment is generally supported by analysts. TipRanks’ survey of eight Wall Street analysts has shown that the stock’s average price target is $21.88. This is an 11.6% upside for CCL stock compared to today’s price.
The company claims that it can now achieve positive adjusted EBITDA beginning with the start of the summer cruise season. There is reason to believe in our 24% higher target price of $24.19 per stock.
