Smooth Sailing for Carnival

05/24/2016 7:00 am EST


Crista Huff

Editor, Cabot Undervalued Stocks Advisor

Our latest featured recommendation is a cruise vacation company and the largest leisure travel company in the world, notes Crista Huff, editor of Cabot Undervalued Stocks Advisor.

Carnival Corp. (CCL) has 10 proprietary brands including Carnival Cruise Lines, Holland America Lines and Princess Cruises.

On May 2nd, Carnival’s ship Adonia visited the port of Havana, Cuba, in an historic voyage to a country that has not seen a US cruise ship in decades.

Cuba and the US restored diplomatic relations a year ago, paving the way for air and sea travel, postal service and other commerce.

In Italy, Carnival just took delivery of the Vista, Carnival’s newest, largest and most innovative ship.

The Vista began its maiden voyage on May 1st, offering a suspended cycling experience, an IMAX theatre, an on-board brewery, and enhanced family accommodations and entertainment features.

Carnival beat Wall Street’s second quarter earnings expectations due to lower fuel costs and a pullback in the strength of the US dollar.

Investors were relieved to know that future cruise bookings remain very strong, despite the recent terrorist attack in Belgium.

As a matter of fact, leisure services stocks have moved up to the top quartile of Zacks’ industry rankings.

Carnival’s consensus earnings estimates have been slowly increasing all year. Analysts expect EPS to grow 25.9% and 17.1% in 2016 and 2017 (November year-end).

The corresponding P/Es are 14.6 and 12.4, indicating that the stock is extremely undervalued.

Carnival announced a 17% increase in its quarterly dividend in April, from 30 cents to 35 cents per share. The current yield is 2.8%.

The stock is extremely undervalued and our rating on the shares is “strong buy”.

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By Crista Huff, Editor of Cabot Undervalued Stocks Advisor

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