Carnival Corporation (CCL) shares closed at $22.31 on Monday, September 21, trading near a six-month low as the company prepares to release third-quarter earnings next Tuesday before the market opens. The stock's current valuation sits below historical averages, prompting value investors to examine the company's free cash flow generation and forward earnings multiples for potential upside.
The cruise line's forward price-to-earnings ratio stands at 10x, a discount to its average of 13x over the last two years. Analysts forecast earnings per share of $2.60 for next year, which would lower the forward P/E multiple to 8.58x. Historical data from Morningstar shows CCL's average forward P/E was 14.25x in 2024 and 12.18x in 2025, with a combined average of 13.2x. A reversion to this average metric implies a 32% increase in share value, or $29.45.
Cash flow metrics support the valuation argument. Carnival generated $1.755 billion in free cash flow last quarter, according to Stock Analysis data. Over the trailing 12 months, free cash flow reached $3.2 billion, representing 11.72% of revenue. Analysts project 2027 revenue of $28.59 billion, which could yield $3.35 billion in free cash flow. Applying a 10% free cash flow yield to that figure suggests a market capitalization of $33.5 billion, or a price target of $24.45 per share.
Wall Street analysts hold more optimistic views than these derived calculations. The average price target from 29 analysts surveyed by Yahoo! Finance is $34.64, while Barchart's mean survey target is $34.26. These figures represent a premium of 53% to 55% over the Monday closing price. The average of the derived price targets and analyst estimates ranges between $24.45 and $29.45, centering on $26.95.
Some market participants are adopting strategies to capitalize on the stock's position near its lows without taking immediate long exposure. Selling short out-of-the-money put options allows investors to collect premiums while setting a floor for potential stock purchases. For the October 23 expiry, the $21.00 strike put option carries a midpoint premium of $0.62. An investor posting $2,100 in collateral would collect $62, yielding approximately 3% if the stock remains above the strike price.
If Carnival stock falls to $21.00 and the option is assigned, the investor's net cost basis would be $20.38 per share after accounting for the premium received. This entry point is 8.65% below the current trading price, providing downside protection relative to buying shares at market value.
Carnival reported revenue growth of 5.76% for the second quarter ending May 31, with the same rate observed for the six-month period. Earnings per share for that period were 41 cents. Management has guided full-year 2026 earnings per share to reach $2.22 for the fiscal year ending November 30.