After a washout during the pandemic, cruise stock Carnival Corporation (CCL) made a strong recovery as travel resumed after the restrictions were lifted. The company benefited from pent-up travel demand as pandemic fears waned.

Despite the sharp pickup in bookings and operations in the third quarter, CCL missed Wall Street EPS and revenue estimates. Analysts expected a loss per share of $0.14, but the company reported a wider loss per share of $0.58. Its revenue missed the consensus estimates by 12.7%.

The company’s occupancy in the third quarter increased by 15 percentage points sequentially. Its available lower berth days (ALBD) for the last quarter rose 74% sequentially to 21 million. Since its announced relaxed protocols in mid-August, the company’s booking volumes for all future sailings are significantly higher than the 2019 levels.

However, its cumulative advance bookings for the current quarter are below the historical range. Moreover, many experts expect travel demand to lag during the holiday season due to high inflation and looming recession worries.

The company’s long-term debt in the third quarter has ballooned to $28.52 billion. The Fed’s rate hikes are expected to worsen conditions for the company as the rate on CCL’s floating rate debt would rise.

CCL announced that it would issue $1 billion in new debt as it tries rolling over the higher-interest debt taken during the pandemic. The proceeds from this debt will be used to pay off the previous higher interest-rate loans and also be used for general corporate purposes.

The stock has declined 52.7% in price year-to-date and 55.4% over the past year to close the last trading session at $9.51. It is trading 60.1% below its 52-week high of $23.86, which it hit on February 10, 2022.

Here’s what could influence CCL’s performance in the upcoming months:

Disappointing Financials

CCL’s operating costs and expenses increased 76.1% year-over-year to $4.58 billion for the third quarter ended August 31, 2022. Its adjusted net loss came in at $688 million. The company’s loss per share came in at $0.65. Also, its total current assets declined 16.8% to $8.43 billion, compared to $10.13 billion as of November 30, 2021.

Mixed Analyst Estimates

CCL’s EPS for fiscal 2022 is expected to remain negative. Its EPS for fiscal 2023 is expected to increase 110.9% year-over-year to $0.51. Its revenue for fiscal 2022 and 2023 is expected to increase 546.3% and 73.6% year-over-year to $12.33 billion and $21.41 billion, respectively.

In addition, its EPS is expected to decline 151.4% per annum over the next five years. It has failed to surpass consensus EPS estimates in each of the trailing four quarters.

Stretched Valuation

In terms of forward EV/S, CCL’s 3.24x is 196.5% higher than the 1.09x industry average. Likewise, its 0.97x forward P/S is 12.8% higher than the 0.86x industry average.

Poor Profitability

CCL’s trailing-12-month net income margin is negative compared to the 5.25% industry average. Likewise, its trailing-12-month EBIT margin is negative compared to the 8.10% industry average. Furthermore, the stock’s 0.18% trailing-12-month asset turnover ratio is 82.1% lower than the industry average of 1.02%.

POWR Ratings Reflect Bleak Prospects

CCL has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CCL has a D grade for Value, consistent with its stretched valuation.

It has a D grade for Quality, in sync with its weak profitability. Also, its 2.13 beta justifies its F grade for Stability.

CCL is ranked #2 out of four stocks in the F-rated Travel – Cruises industry. Click here to access CCL’s Growth, Momentum, and Sentiment ratings.

Bottom Line

Despite the growth in bookings, CCL is still far from reporting profits. Although the company sounds optimistic, the recession fears are expected to dampen travel demand during the holiday season. Moreover, CCL is laden with debt, which could make it difficult for the company to stay afloat amid the rising interest rate environment.

Given its weak financials, stretched valuation, and poor profitability, it could be wise to steer clear of the stock now.

CCL shares were trading at $9.50 per share on Friday afternoon, down $0.01 (-0.11%). Year-to-date, CCL has declined -52.78%, versus a -15.89% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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