The cruise industry is sailing in choppy waters as it deals with a storm of red-hot inflation and consequent interest rate hikes, which might push the economy into a recession. Wall Street analysts have already cut their 2022 revenue estimates for cruise operators by 5% on average.

On top of it, the travel industry is experiencing a severe staffing shortage, particularly for customer-facing roles. Industry CEOs acknowledge that they are struggling to add staff to meet demand.

Moreover, a recovery in global business travel spending to pre-pandemic levels is likely to be delayed because of persistent inflation alongside other factors such as high energy prices.

Given this backdrop, it might be best to avoid travel stocks Carnival Corporation & plc (CCL) and Norwegian Cruise Line Holdings Ltd. (NCLH), which have been running at a loss this year.

Carnival Corporation & plc (CCL)

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

In August, it was reported that CCL’s Princess cruises canceled 11 sailings aboard the Diamond Princess. The company stated that it faced labor issues as travelers flocked back to cruises post-pandemic and its ships resumed sailing with increased occupancy.

CCL’s forward EV/Sales multiple of 2.96 is 185% above the industry average of 1.04.

In the third fiscal quarter that ended August 31, CCL’s operating costs and expenses increased 76.1% year-over-year to $4.59 billion. Its operating loss came in at $279 million, while its adjusted net loss amounted to $688 million. The company’s loss per share amounted to $0.65.

Analysts expect CCL’s EPS to be negative $0.86 for the fiscal fourth quarter ending November.

The stock has declined 73.2% over the past year to close its last trading session at $6.38. It has declined 70% year-to-date.

This bleak outlook is reflected in CCL’s POWR Ratings. The stock has an overall D rating, which equates 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 is graded an F in Stability and Sentiment and a D in Quality. It is ranked #2 out of the four stocks in the F-rated Travel – Cruises industry.

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

Norwegian Cruise Line Holdings Ltd. (NCLH)

NCLH operates as a cruise company in North America, Europe, the Asia-Pacific, and internationally along with its subsidiaries. The company operates the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands.

In terms of its forward EV/Sales, NCLH is currently trading at 3.70x, 255.8% higher than the industry average of 1.04x. Its forward Price/Sales multiple of 1.06 is 37.8% higher than the industry average of 0.77.

NCLH’s total cruise operating expenses rose 329.8% year-over-year to $1.07 billion in the fiscal second quarter that ended June 30, 2022. Its adjusted net loss came in at $478.30 million, while its adjusted loss per share amounted to $1.14.

NCLH’s EPS is likely to be negative $0.76 for the fourth quarter ending December 2022.

Over the past year, the stock has plunged 54.8% to close the last trading session at $11.91.

NCLH has an overall F grade, equating to a Strong Sell in our POWR Ratings system. The stock has an F grade for Stability and a D for Value, Sentiment, and Quality. It is ranked last in the Travel – Cruises industry.

Click here to access the NCLH rating for Growth and Momentum.

CCL shares were trading at $6.53 per share on Tuesday afternoon, up $0.15 (+2.35%). Year-to-date, CCL has declined -67.54%, versus a -23.91% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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