The cruise companies are sailing in troubled waters due to the persistently high inflation, aggressive interest rate hikes, and an impending recession. The rapid rise in interest rates is making recession look inevitable in the coming months. Given the macroeconomic headwinds, recovery in global business travel spending to pre-pandemic levels is likely to be delayed, posing further challenges to debt-ridden cruise operators.

With little income and massive fixed costs, these companies raised billions in new debt and are now struggling amid the threat of slowing consumption growth and a cutback on consumers’ discretionary spending. CCL’s CEO noted that the company’s total debt balance was just over $10 billion before the pandemic, which increased to more than $35 billion in October. 

Amid this backdrop, it could be wise to avoid cruise stocks Carnival Corporation & plc (CCL) and Norwegian Cruise Line Holdings Ltd. (NCLH), given their weak fundamentals.

Carnival Corporation & plc (CCL)

CCL operates as a leisure travel company in the United States and internationally. Its ships visit port calls under the brand names Carnival Cruise Line, Princess Cruises, Holland America Line, P&O Cruises (Australia), Seabourn, Costa Cruises, AIDA Cruises, P&O Cruises (UK), and Cunard.

The company also provides port destinations and other services and owns and operates hotels, lodges, glass-domed railcars, and motor coaches.

In August, CCL’s Princess Cruises canceled 11 sailings on its Diamond Princess ship due to staffing issues that have been consistent across the cruise industry this year. According to the company, the brand faced “labor challenges” as travelers flocked back to cruises, and its ships resumed sailing with increased occupancy.

For the fiscal third quarter ended August 31, CCL reported an operating loss of $279 million. The company’s adjusted net loss came in at $688 million, while its loss per share amounted to $0.65 in the same period.

CCL’s EPS is expected to come in at a negative $0.86 for the quarter ending November 2022. The company also missed the consensus EPS estimates in all four trailing quarters.

CCL’s trailing-12-months Price/Sales multiple of 0.92 is 19.1% higher than the industry average of 0.77. In terms of its forward EV/Sales, the stock is trading at 3.10x, 193.1% higher than the industry average of 1.06x.

The stock has declined 65.6% over the past year and 61.8% year-to-date to close the last trading session at $7.68.

CCL’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of D, which translates to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

CCL has an F grade for Stability and Sentiment and a D for Quality. Within the F-rated Travel – Cruises industry, it is ranked #2 of 4 stocks.

In addition to the POWR Rating grades we’ve stated above, you can see CCL ratings for Growth, Value, and Momentum here.

Norwegian Cruise Line Holdings Ltd. (NCLH)

NCLH operates as a cruise company in North America, Europe, the Asia-Pacific, and internationally. It offers itineraries ranging from three days to a 180-days calling on various locations, including Scandinavia, Russia, the Greek Isles, Alaska, Canada, and Hawaii. Its brands include the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises.

In the second quarter ended June 30, 2022, NCLH’s operating loss came in at $396.80 million. The company reported a net loss of $509.32 million, while its loss per share amounted to $1.22. Its cash and cash equivalents balance stood at $1.90 billion, down 19.5% year-over-year for the six months ended June 30.

Analysts expect NCLH’s loss per share to come in at $0.69 for the quarter ended September 2022 and $4.40 for the ongoing fiscal year. The company could not surpass the consensus EPS estimates in any of the four trailing quarters.

In terms of its forward EV/Sales, NCLH is currently trading at 3.82x, 261.9% higher than the industry average of 1.06x. Its forward Price/Book multiple of 10.59 is 354.7% higher than the industry average of 2.33.

The stock has declined 45.7% over the past year and 32.9% year-to-date to close the last trading session at $13.91.

NCLH’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.

It is also graded F for Stability and a D for Sentiment, Value, and Quality. The stock is ranked last in the same industry.

Beyond what is stated above, you can see the NCLH rating for Momentum and Growth here.

CCL shares rose $0.12 (+1.56%) in premarket trading Thursday. Year-to-date, CCL has declined -61.83%, versus a -21.52% rise in the benchmark S&P 500 index during the same period.

Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.

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