Most cruise companies suffered heavy losses due to the COVID-19 pandemic-led restrictions. Although the industry made a strong recovery with the easing of travel restrictions and the reopening of the economy, cruise stocks Carnival Corporation & plc (CCL - Get Rating) and Norwegian Cruise Line Holdings Ltd. (NCLH - Get Rating) nosedived after a Morgan Stanley analyst outlined a worst-case scenario that CCL could sink to $0 in the event of a global economic downturn.

In a report, MS analyst Jamie Rollo said, “If there is a demand shock that causes trip cancellations or weak bookings, liquidity could quickly shrink.” According to Rollo, if CCL’s revenue and capacity increase from the 2019 levels, its new base-case target price is $7. Meanwhile, Citigroup has maintained its Neutral rating for NCLH but lowered its price target to $13 per share from $18.

With recession appearing inevitable, cruise companies will likely get affected by a fall in demand as people usually cut down on discretionary spending during a recession. While the cruise industry barely survived the pandemic, an economic downturn can wreak havoc on their liquidity. Considering the weak fundamentals of CCL and NCLH, we think these stocks are best avoided now.

Carnival Corporation & plc (CCL - Get Rating)

CCL functions as a leisure travel company. It owns and operates hotels, lodges, glass-domed railcars, and motor coaches and offers port destinations and other services. The company operates in the United States, Canada, Continental Europe, the United Kingdom, Australia, New Zealand, Asia, and internationally.

For its fiscal second quarter ended May 31, 2022, CCL’s operating loss and net loss came in at $1.47 billion and $1.83 billion, compared to losses of $1.61 billion and $2.07 billion, respectively, in the year-ago period. The company’s adjusted loss per share narrowed 12% year-over-year to $1.61.

Analysts expect its EPS for fiscal 2022 to remain negative. It failed to surpass Street EPS estimates in each of the trailing four quarters. Over the past five days, the stock has lost 16.4% to close the last trading session at $8.82.

CCL’s POWR Ratings reflect a bleak outlook. It has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

It has an F grade for Stability and Sentiment and a D for Value and Quality. It is ranked #2 out of 4 stocks in the F-rated Travel – Cruises industry. Click here to see the other ratings of CCL for Growth and Momentum.

Norwegian Cruise Line Holdings Ltd. (NCLH - Get Rating)

NCLH is a leading global cruise company that operates the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises brands. It offers itineraries ranging from three days to 180-days calling on various locations across the globe.

NCLH’s total cruise operating expenses increased 266.1% year-over-year to $735.41 million in the fiscal 2022 first quarter ended March 31, 2022. Its operating loss widened 20.6 % from its year-ago value to $688.76 million. The company’s net loss narrowed to $982.71 million compared to $1.37 billion in the same quarter last year. Its loss per share narrowed 43.5% year-over-year to $2.35.

Analysts expect NCLH’s EPS for fiscal 2022 to remain negative. It failed to surpass consensus EPS estimates in three of the trailing four quarters. Over the past five days, the stock has lost 11.9% to close the last trading session at $11.33.

NCLH’s POWR Ratings reflect its poor prospects. The company has an overall F rating, equating to a Strong Sell in our proprietary rating system.

NCLH has an F grade for Stability and Sentiment and a D for Value and Quality. It is ranked last in the Travel – Cruises industry. To see additional POWR Ratings (Growth and Momentum) for NCLH, click here.

CCL shares were trading at $8.43 per share on Tuesday morning, down $0.39 (-4.42%). Year-to-date, CCL has declined -58.10%, versus a -20.60% 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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