Shares of Carnival Corp. (CCL) sank more than 15% last week, even as the cruise line operator reported quarterly results that came in above estimates on both the top- and bottom-line, suggests John Buckingham, value investing expert and editor of The Prudent Speculator.

For fiscal Q4, Carnival posted adjusted EPS of $0.70, which slightly topped consensus expectations of $0.69. Revenue for the period of $4.46 billion came in above forecasts calling for $4.44 billion.

That said, investors were extremely disappointed by the company’s net yield outlook for 2019 of 1%, below consensus of 2%, despite its EPS outlook of $4.50 to $4.80 being generally in line with investor average forecasts of $4.70. We note that we believe that CCL is again being conservative in their forecasts, as this has shown up in net yield predictions the past three years.

Why does this matter? There is potential upside to CCL’s current outlook if demand stays steady, however if demand slows, we think the EPS outlook has seemingly less risk than some other cruise companies, and recent history suggests they are being intentionally conservative in their forecasts.

It is also worth noting that on the earnings call, management kept the focus on another year of double-digit earnings growth and higher ROIC, which seems pretty good to us. The company said cumulative advance bookings for full year 2019 are considerably ahead of the prior year at prices that are in line with the prior year.

Pricing on bookings taken since September has been running in line on a comparable basis to the prior year while booking volumes are significantly higher. As a result, even with higher capacity, there is less inventory remaining for sale than at the same time last year.

We think the sell-off last week and this year has been overdone. CCL shares are trading at just slightly above 10 times next 12-month adjusted earnings expectations, levels that haven’t been seen since the Financial Crisis.

While near-term headwinds will continue to blow, we maintain our long-term optimism on Carnival and the overall cruise industry space, given favorable demographic trends and the fact that there are still meaningful growth opportunities in emerging economies, which are encouraging for global revenue diversification and the ability to rapidly reach a new customer base. The shares now sport a 4.2% dividend yield. Our Target Price has been adjusted to $82.

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