Carnival Corp (CCL)

[Tha Part Time Er]

The world’s biggest cruise line operator, Carnival, doubles as one of the best cruise stocks to buy now.

By my numbers, CCL stock could rally 70%+ over the next 18 months.

Of course, fiscal 2020 for this company will be awful. For more than half of the year, the company will run zero cruises. For the other half of the year, cruise capacity will be significantly depressed — if those planned cruises run at all.

Fiscal 2021 will be a much better year. Consumers will get more comfortable with riding on cruises, especially if prices remain discounted and if a vaccine is approved by early 2021. Concurrent to that, Carnival will increase cruise capacity. The company’s revenues and profit margins will meaningfully rebound.

By fiscal 2022, things should be largely back to “normal” for Carnival. The virus will be more than two years old. The vaccine will have been in circulation for more than a year. Global travel trends will start to look like they did in 2019.

Assuming so, Carnival’s fiscal 2022 revenues should be awfully close to where they were in fiscal 2019 (approximately $21 billion). Profit margins won’t rebound to where they had been historically — roughly 17% average operating margin from 2015 to 2019 — but should recover to a lower steady-state around 10% to 12% thanks to higher cleaning and maintenance costs.

Under those assumptions, $2.40 seems like a doable earnings per share target for Carnival by 2022. CCL stock historically trades at 13-times forward earnings.

That combination implies a fair 2021 price target for CCL stock of over $31 — or more than 70% above where shares trade today. All of that together makes Carnival one of the best cruise stocks to consider buying now.