Carnival Corporation: Sailing Out Of Trouble

Summary

• Since 2019, Carnival Corporation debt ballooned by 3x and interest expense by 10x, due to a double whammy hit from Covid followed by rate hikes.
• Deleveraging plans shared by CCL management is poised to drive recovery in EPS to $2.2 by 2026, via strategic paydown of debt, leading to significant savings in interest payments.
• The deleveraging playbook can be comfortably executed with current cash flows at record highs over pre-Covid levels, and from lowered CAPEX due to lesser new ship deliveries.
• Applying a historical P/E of about 14 to forecasted 2026 EPS of $2.2 derives an intrinsic value of $30, a potential two-bagger from the current share price of $16.5.