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One Way or Another Carnival Cruise Lines Should Be a Compelling Buy

Carnival is expected to deliver revenue of $2.3 billion when it reports earnings. That's less than half of its pre-pandemic revenue, and a reminder that it may still be several...

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This story originally appeared on MarketBeat

The only problem for investors is knowing when CCL stock will pay off

Carnival Cruise Lines (NYSE:CCL) reports earnings before the market opens on March 22. The company is expected to report negative earnings per share of $1.16. That's about a 20% improvement from the prior quarter. And it would also be the best number the company has posted since the pandemic began.

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However, nobody was expecting Carnival to become profitable right away. The first step will be to have revenue return to pre-pandemic levels. With that in mind, analysts are projecting that Carnival will deliver revenue of $2.3 billion.

How significant is that? Consider that in the last quarter, the company posted $1.29 billion. However, in the seven quarters prior to that (I.e. the length of the pandemic), Carnival posted a total of $2.1 billion in revenue.

And still, that will be less than half of what the company brought in for the last quarter prior to the pandemic. Which simply means that while revenue is recovering, it may still be several quarters before Carnival is firing on all cylinders.

Is There Another Hurdle to Clear?

Despite that optimistic look at revenue, CCL stock is declining heading into earnings. One reason for that is an analyst report from Truist Financial. In the report, which cited conversations the firm had with senior executives at major travel agencies, the firm projects that demand for cruises through the second quarter of 2022 looks to be weak. Or at least weaker than Carnival had thought back in December 2021.

I would suspect that Covid hesitancy or vaccine hesitancy is now being replaced by old-fashioned economic hesitancy. The rate of growth of inflation may, in fact, be slowing. But it will still be well into 2023 before most consumers begin to experience relief. That makes it fair to wonder what travel plans will be curtailed.

I believe this is particularly salient for Carnival because it's always been one a cruise line that catered to the middle-class homes that are feeling the pinch of inflation more than ever.

Analysts Remain Lukewarm

I've seen some talk on message boards about CCL stock being a multi-bagger stock. I believe that's a possibility, in time. But for now, analysts covered by MarketBeat give the stock a $27.75 consensus price target. That's an upside of just under 50%. In a market that's as volatile as the one we're currently in, that will be enough for many investors. But if you're expecting Carnival stock to reach pre-pandemic levels, you'll want to have a longer time horizon.

However, on the other hand, analysts are forecasting revenue of $15.2 billion for 2022. And with a market capitalization of $18.6 billion, Carnival is trading for approximately 1.2 times forward sales. And when you add in a price-to-book ratio of 3.68, Carnival can be considered undervalued.

Is CCL Stock a Buy?

My answer today is the same as it was during the pandemic. At that time, I felt that investors who had a long-term horizon should hold the stock. My belief then, and now, is that demand for cruising would return. It was just a question of when.

It's taken longer than many of us thought. But with Covid restrictions being lifted throughout the country, it appears that CCL stock has found a floor.

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