Carnival Corp Stock Looks Cheap To Value Investors Ahead Of Earnings Next Week

Carnival Corporation (CCL) looks undervalued to value investors ahead of its Q3 earnings release next Tuesday (29th), before the market opens. For example, its forward P/E ratio is just 10x, versus an average of 13x over the last 2 years.

Moreover, the cruise company is generating strong free cash flow (FCF) and high FCF margins. This allows it to reduce its debt pile, buy back shares, and pay dividends - everything value investors love.

CCL stock - last 6 months - Barchart - Sept. 21, 2026

Moreover, CCL stock is near a low point. CCL closed at $22.31 on Monday, Sept. 21, near a recent 6-month low of $21.84 last Friday, Sept. 18. This article will show that one attractive way to play CCL is to sell short out-of-the-money put options.

Strong Earnings and Free Cash Flow

For Q2 ending May 31, Carnival Corp saw its revenue rise 5.76%, and for the six months, it rose at the same rate. Moreover, its earnings per share (EPS) hit 41 cents, and management is guiding for full-year 2026 (to Nov. 30) EPS to reach $2.22.

In addition, Carnival generated $1.755 billion in free cash flow (FCF) last quarter, according to Stock Analysis data. And over the trailing 12 months (TTM), its FCF was $3.2 billion, representing 11.72% of TTM revenue.

As a result, analysts' 2027 revenue forecasts of $28.59 billion (year ending Nov. 2027) could lead to $3.35 billion in FCF. That could push the stock significantly higher.

Valuation is Too Low

For example, using a 10% FCF yield (i.e., 10x FCF), CCL would eventually be worth $33.5 billion (10 x $3.35b FCF). That is +9.6% over its market cap of $30.557 billion (Yahoo! Finance).

That implies, based on its FCF, CCL's price target (PT) is $24.45 (i.e., 1.096 x $22.31).

Moreover, at today's price ($22.31), CCL stock is trading on a forward price/earnings (P/E) multiple of just 10x. However, analysts forecast $2.60 in EPS for next year, putting it on a forward P/E of just 8.58x.

This compares to its average forward P/E of 14.25x in 2024 and 12.18x in 2025, or 13.2x, using Morningstar historical forward P/E statistics.

In other words, if CCL stock eventually reverts to its average metric, it should be worth 32% more, or $29.45 (i.e., 13.2x/10.0x -1 =+32% upside).

So, the CCL average PT range is between $24.45 and $29.45, or $26.95.

However, Wall Street analysts have much higher price targets. The average of 29 analysts surveyed by Yahoo! Finance is $34.64, and Barchart's mean survey PT is $34.26. These PTs are 53% - 55% higher than Monday's close.

In short, CCL is just too cheap, and most value investors expect the stock will eventually rise towards these PTs.

However, there's no guarantee CCL will rise anytime soon. One way to conservatively play CCL is to sell short out-of-the-money (OTM) puts. That way, an investor can collect income while waiting to buy in at a lower price.

Shorting OTM CCL Puts

For example, the October 23 expiry period shows that the $21.00 strike price put option has a midpoint premium of $0.62. That means an investor who posts $2,100 in collateral with their brokerage firm can collect $62.00.

As long as CCL stays over $21.00 for the next month, the account will not be assigned to buy 100 shares at $21.00. This implies a yield-to-expiry of almost 3% (i.e., $62/$2,100 = 0.0295 = 2.95%).

CCL puts expiring Oct. 23 - Barchart - As of Sept. 21, 2026

The idea is that an investor can make 2.95% each month by shorting OTM CCL puts. That works out to 17.7% over 6 months, and 35.4% on an annualized basis, assuming this play can be made each month. That's the same as the upside in buying CCL right now.

However, even if CCL stock falls to $21.00 and the account is assigned to buy 100 shares, the investor's net cost, after the income, is just $21.00 - $0.62, or $20.38. That's 8.65% below today's price. So it provides good downside protection.

The bottom line is that shorting OTM CCL puts is an attractive way to play Carnival Corp stock ahead of its earnings release next week.