When weighing up a potential investment, we always need to look forward rather than backwards. If you buy a stake in a business, it’s the future profits that count — and the stock market will value your shares based on future expectations.
With that in mind, it can be helpful to review what expert City analysts are expecting a company to earn in the coming years. These expectations can be compared to the share price, to give you a better idea of how the stock market is valuing the business.
Today I’m looking at the earnings per share (EPS) forecasts for Carnival (LSE: CCL) (NYSE: CCL.US), the FTSE 100 cruise operator. All my figures are courtesy of S&P Capital IQ.
Analysts expect Carnival to earn £1 per share in the coming year. This estimate means that, compared to today’s share price of 2,358p, the market is valuing Carnival’s shares on a forward price-to-earnings multiple of 23.6.
Looking ahead though, the consensus calls for Carnival’s earnings to recover to 143p per share in 2014 before climbing to 173 pence in 2015. The data indicates Carnival’s revenues might grow more modestly than the jump in earnings, by 4% a year over the same time period, from $15.3bn to around $17bn.
It would seem the market is sensibly factoring in Carnival’s recent woes and this year’s disappointing performance, in order to focus on the business’ earning potential under less-troubled circumstances. But while Carnival’s valuation is more modest than the forward P/E suggests, could investors be sunk by the long-term damage to the cruise operator’s reputation?
Whether the City’s profit projections and the current valuation make the shares of Carnival ‘fairly priced’ is for you to decide. But if you already own shares in Carnival or are looking for alternative investment opportunities, in this exclusive wealth report I’ve helped pinpoint five particularly attractive possibilities.
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> Mark does not own any shares in this article.
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