Sell the Cruises, Buy This Travel Stock Instead

NYSE: CCL | Carnival Corporation  News, Ratings, and Charts

CCL – The travel industry witnessed a solid post-pandemic rebound last year and is poised for significant growth in the foreseeable future, driven by pent-up travel demand. However, given the challenging macro environment, avoiding struggling cruise stocks Carnival Corporation (CCL) and Norwegian Cruise (NCLH) could be wise. Instead, investors could consider buying the fundamentally sound travel stock Playa Hotels (PLYA). Keep reading….

The travel industry made a remarkable comeback in 2022 following the adverse impact of the COVID-19 pandemic. Despite prevailing macroeconomic headwinds, travel industry growth is expected to remain robust this year due to continued pent-up travel demand.

While fundamentally weak cruise stocks Carnival Corporation & plc (CCL) and Norwegian Cruise Line Holdings Ltd. (NCLH) might be best avoided now, investors could consider buying quality travel stock Playa Hotels & Resorts N.V. (PLYA) to capitalize on the industry’s tailwinds.

Before delving deeper into the fundamentals of these stocks, let us first explore what is happening in the travel industry.

Last year, the travel industry made a solid recovery to pre-pandemic levels, propelled by pent-up travel demand and a strong urge among travelers to make up for lost opportunities. According to data compiled by UNWTO, over 900 million tourists traveled internationally in 2022, nearly double the number reported in 2021 and 63% of pre-pandemic levels.

After a stronger-than-expected recovery last year, international tourist arrivals are expected to reach approximately 80% to 95% of pre-pandemic levels this year. Moreover, the recent lifting of COVID-19-imposed travel restrictions in China is a significant step toward a rebound of the travel and tourism sector in Asia and worldwide.

The U.S. Travel Association’s latest forecast indicates that, as of mid-January, over half of all Americans (52%) and 79% of leisure travelers plan to embark on leisure travel in the upcoming six months.

According to a report by Allied Market Research, the global leisure travel market is projected to reach $1.74 trillion by 2027, growing at a 22.6% CAGR. Investors’ interest in travel stocks is evident from ALPS Global Travel Beneficiaries ETF’s (JRNY) 16.6% returns over the past six months.

However, cruise companies risk piling up more debt as they continue with their new vessel orders despite an uncertain consumer spending backdrop. Moreover, after facing significant backlash, the cruise industry will likely bear greater costs to implement sustainability measures.

Hence, although struggling stocks CCL and NCLH are best avoided now, it could be wise to invest in fundamentally sound travel stock PLYA, given the industry’s bright growth prospects.

Let’s take a closer look at these stocks.

Stocks to Avoid:

Carnival Corporation & plc (CCL)

CCL offers facilities for leisure travel. It owns and runs hotels, lodges, glass-domed railcars, and motor coaches. The company operates a fleet of more than 90 ships visiting around 700 ports. It primarily provides its cruises via websites, travel agencies, tour operators, and vacation planners.

CCL’s trailing-12-month gross profit margin of 31.31% is 10.5% lower than the 34.99% industry average. And the stock’s trailing-12-month EBITDA margin of negative 13.73% compares with the industry average of 11.44%. Moreover, its trailing-12-month net income margin of negative 50.07% compares to the 4.56% industry average.

For the fourth quarter that ended November 30, 2022, CCL’s operating costs and expenses increased 56.4% year-over-year to $4.97 billion. The company’s adjusted net loss and net loss per share were $1.07 billion and $0.85, respectively, for the quarter. Also, as of November 30, 2022, CCL’s cash and cash equivalents stood at $4.03 billion, compared to $8.94 billion as of November 30, 2021.

CCL is expected to report a loss per share of $0.60 in the first quarter that ended February 2023. In addition, analysts expect the company to report a loss per share of $0.27 for the current quarter (ending May 2023). Moreover, CCL missed the consensus EPS estimates in three of the trailing four quarters.

The stock has declined 19.7% over the past month and 52.5% over the past year to close the last trading session at $8.99.

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

The stock has an F grade for Stability and a D for Quality. It ranks #3 within the F-rated 4-stock Travel – Cruises industry.

Click here to see the other ratings of CCL for Value, Sentiment, Momentum, and Growth.

Norwegian Cruise Line Holdings Ltd. (NCLH)

NCLH is a global cruise company that runs the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands. It has roughly 28 ships with a total capacity of 59,150 berths. The company sells its products through retail/travel advisors and onboard cruise sales channels, alongside meetings, incentives, and charters.

The stock’s trailing-12-month gross profit margin of 11.91% is 66% lower than the 34.99% industry average. Its trailing-12-month EBITDA margin of negative 15.32% compares with the industry average of 11.44%. Also, its trailing-12-month levered FCF margin of negative 7.76% compares to the 1.91% industry average.

NCLH’s total cruise operating expense increased 69.9% year-over-year to $1.22 billion in the fourth quarter that ended December 31, 2022. Its adjusted net loss and net loss per share stood at $439.75 million and $1.04, respectively. As of December 31, 2022, NCLH’s current assets came in at$1.88 billion, compared to $3.30 billion as of December 31, 2021.

Analysts expect NCLH to report a loss per share of $0.42 for the first quarter (ending March 2023). Also, the company failed to surpass the consensus EPS estimates in three of four trailing quarters, which is disappointing.

The stock has plummeted 26.6% over the past month and 37.4% over the past year, closing the last trading session at $12.47.

NCLH’s POWR Ratings reflect its weak fundamentals. The stock has an overall rating of D, translating to Sell in our proprietary rating system.

It has an F grade for Stability and Sentiment and a D for Quality. NCLH is ranked last among the four stocks in the Travel – Cruises industry.

Beyond the POWR Ratings stated above, we have also given NCLH grades for Value, Momentum, and Growth. Get all NCLH ratings here.

Stock to Buy:

Playa Hotels & Resorts N.V. (PLYA)

PLYA owns, manages, and develops all-inclusive resorts on beachfront properties throughout Mexico and the Caribbean. It supervises four resorts in these two destinations overseen by a third party. Moreover, the company’s portfolio includes over 20 resorts in Mexico, Jamaica, and the Dominican Republic.

On March 13, PLYA announced the management of a new Wyndham Alltra resort in the Dominican Republic, making it the fourth Wyndham Alltra resort managed by PLYA. This addition to their portfolio is expected to fortify PLYA’s reputation, drive their financial performance, and extend their market presence.

Moreover, on December 19, 2022, the company announced the expansion of its Jewel Resorts brand by adding two new Jewel Resorts in the Dominican Republic. These additions could aid the company in expanding its market share in the mid-level luxury segment.

Given the brand’s success in Jamaica, this move is expected to reinforce further PLYA’s position as a leading player in the hospitality industry, elevate its brand recognition, and boost its revenue streams.

PLYA’s trailing-12-month gross profit margin of 46.40% is 32.6% higher than the 34.99% industry average. Its trailing-12-month EBITDA margin of 23.60% is 106.3% higher than the industry average of 11.44%. Moreover, its net income margin of 6.70% is 47% higher than the 4.56% industry average.

For the fourth quarter that ended December 31, 2022, PLYA’s total revenues grew 19.2% year-over-year to $210.80 million. Its operating income rose 7.9% from the prior year’s period to $23.51 million. Moreover, its adjusted EBITDA increased 25.8% from the year-ago value to $59.10 million.

Also, the company’s adjusted net income and EPS stood at $20.59 million and $0.13, compared to a loss and loss per share of $4.47 million and $0.03 in the previous year’s quarter, respectively.

The consensus revenue estimate of $944.76 million for the fiscal year (ending December 2023) reflects a 10.3% year-over-year improvement. Likewise, the consensus EPS estimate of $0.57 for the ongoing year indicates a 14.6% rise year-over-year. Moreover, the company has topped its consensus revenue estimates in all four trailing quarters.

Shares of PLYA have gained 11.8% over the past month and 47.2% over the past six months to close the last trading session at $8.80.

PLYA’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.

PLYA has an A grade for Sentiment and a B for Quality. It is ranked #5 out of 22 stocks in the B-rated Travel – Hotels/Resorts industry.

In addition to the POWR Ratings I’ve just highlighted, you can see PLYA’s ratings for Value, Growth, Stability, and Momentum here.

Consider This Before Placing Your Next Trade…

We are still in the midst of a bear market.

Yes, some special stocks may go up like the ones discussed in this article. But most will tumble as the bear market claws ever lower this year.

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  • 5 Warnings Signs the Bear Returns Starting Now!
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  • How Low Will Stocks Go?
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You owe it to yourself to watch this timely presentation before placing your next trade.

REVISED: 2023 Stock Market Outlook >

CCL shares were trading at $9.24 per share on Thursday afternoon, up $0.25 (+2.78%). Year-to-date, CCL has gained 14.64%, versus a 3.87% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...

More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
CCLGet RatingGet RatingGet Rating
NCLHGet RatingGet RatingGet Rating
PLYAGet RatingGet RatingGet Rating
JRNYGet RatingGet RatingGet Rating

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