Carnival Corporation (CCL) missed the consensus estimates for its 2022 third quarter. It missed the revenue estimate by 12.7% and the EPS estimate by 309.2%. Its revenues came in at $4.30 billion for the third quarter ended August 31, 2022, while its loss per share came in at $0.65. Moreover, several analysts have downgraded the stock in the recent past.

Barclays downgraded CCL from $14.00 to $10.00 and set an “overweight” rating. Credit Suisse Group dropped their price target on CCL from $29.00 to $22.00. Also, Morgan Stanley dropped their price target from $7.00 to $6.00 and set an “underweight” rating.

Cruise companies took a setback during the pandemic. While demand has been rebounding, the industry got struck again by surging inflation, the Fed’s aggressive rate hike campaign, and a slowing economy. Moreover, cruise companies are struggling with massive debts, made more expensive by rising interest rates.

Also, CCL’s ballooning costs due to inflation is concerning. Its fuel expenses came in at $668 million for the third quarter that ended August 31, 2022, up 267% year-over-year, while its payroll expenses came in at $563 million, up 50.1% year-over-year. Moreover, its total expenditures came in at $4.58 billion, up 76.1% year-over-year.

CCL has gained 18.7% over the past month to close the last trading session at $9.73. However, it has lost 51.6% year-to-date and 51.7% over the past year.

Here is what could shape CCL’s performance in the near term:

Incapacitated Balance Sheet

CCL’s cash and cash equivalents came in at $7.07 billion for the period ended August 31, 2022, compared to $8.94 billion for the period ended November 30, 2021. Its total current assets came in at $8.43 billion, compared to $10.13 billion for the same period.

Moreover, its total current liabilities came in at $12.95 billion compared to $10.41 billion. Also, its long-term debt came in at $28.52 billion, compared to $28.51 billion.

Mixed Valuation

CCL’s forward Price/Book of 1.54x is 42.8% lower than the industry average of 2.68x.

However, its forward EV/Sales of 3.26x is 200.6% higher than the industry average of 1.08x, while its forward Price/Sales of 0.99x is 13.7% higher than the industry average of 0.87x.

Poor Profitability

CCL’s trailing-12-month gross profit margin of 25.55% is 28.5% lower than the industry average of 35.73%. Its trailing-12-month EBITDA and net income margins of negative 26.89% and 73.98% are lower than the industry averages of 11.08% and 5.14%, respectively.

Its trailing-12-month ROCE, ROTC, and ROTA of negative 61.23%, 6.64%, and 13.70% are lower than the industry averages of 13.35%, 6.65%, and 4.45%, respectively.

POWR Ratings Reflect Bleak Prospects

CCL has an overall rating of F, equating to a Strong Sell in our proprietary POWR Ratings 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, consistent with its beta of 2.13.

It has a D grade for Quality, in sync with its lower-than-industry profitability margins.

In the 4-stock Travel – Cruises industry, CCL is ranked #2.

Click here for the additional POWR Ratings for CCL (Growth, Value, Momentum, Sentiment).

View all the top stocks in the Travel – Cruises industry here.

Bottom Line

CCL is currently struggling amid industry headwinds. Analysts expect the travel stock’s EPS to fall 151.4% per annum for the next five years. Moreover, it missed EPS estimates in all four trailing quarters. And given its negative profitability, CCL might be best avoided.

CCL shares were trading at $9.80 per share on Friday morning, up $0.07 (+0.72%). Year-to-date, CCL has declined -51.29%, versus a -14.33% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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