While the cruise line companies have just been recovering from the pandemic setback, the Fed’s aggressive rate hikes are raising worries about cruise companies’ huge debt loads and ability to recover amid an economic slowdown. “There’s a lot of one step forward, one step back going on,” Truist analyst Patrick Scholes said.

Moreover, the Fed will likely raise interest rates by another 75 bps in November 2022. Persistently high inflation and consecutive rate hikes have negatively impacted consumer confidence. According to the Conference Board, its consumer confidence index fell to 102.5 in October, down 4.9% month-over-month.

In addition, Goldman Sachs analysts have estimated a 35% chance of a recession in the next 12 months. The recession worries are prompting consumers to cut back on discretionary spending, leading to reduced demand for cruise companies. Cruise lines are having a hard time filling up ships for fall excursions.

Given the backdrop, fundamentally weak stocks Carnival Corporation & plc (CCL - Get Rating) and Norwegian Cruise Line Holdings Ltd. (NCLH - Get Rating) might continue to struggle to remain afloat and might be best avoided now.

Carnival Corporation & plc (CCL - Get Rating)

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 terms of forward EV/sales, CCL is trading at 3.16x, 195% higher than the industry average of 1.07x. The stock’s forward Price/Sales multiple of 0.88 is 7.4% higher than the industry average of 0.82.

Its negative EBIT Margin of 50.38% is lower than the industry average of 8.11%, while its negative net income margin of 73.98% is lower than the industry average of 5.56%.

CCL’s operating costs and expenses came in at $4.59 billion for the third quarter that ended August 31, 2022, up 76.1% year-over-year. Its total current liabilities came in at $12.95 billion for the period ended August 31, 2022, compared to $10.41 billion for the period ended November 30, 2021. Also, its total current assets came in at $8.43 billion, compared to $10.13 billion for the same period.

CCL missed EPS estimates in all four trailing quarters. The stock has lost 60.3% over the past year to close the last trading session at $8.65.  

CCL’s POWR Ratings are consistent with this bleak outlook. It has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

CCL has an F grade for Stability and Sentiment and a D for Quality and Value. It is ranked #2 out of 4 stocks in the F-rated Travel – Cruises industry. We have also rated CCL for Growth and Momentum. Get all CCL ratings here.

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

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

NCLH’s forward EV/sales of 3.97x is 270.1% higher than the industry average of 1.07x. The stock’s forward Price/Sales multiple of 1.42 is 72.8% higher than the industry average of 0.82.

Its negative EBIT Margin of 104.78% is lower than the industry average of 8.11%, while its negative net income margin of 166.44% is lower than the industry average of 5.56%.

NCLH’s total current liabilities came in at $5.05 billion for the period ended June 30, 2022, compared to $3.73 billion for the period ended December 31, 2021. Its total liabilities came in at $18.21 billion, compared to $16.30 billion for the same period. Also, its total current assets came in at $3.13 billion, compared to $3.30 billion for the same period.

Analysts expect NCLH’s EPS to decrease 165.1% per annum for the next five years. It missed EPS estimates in all four trailing quarters. Over the past year has lost 37.5% to close the last trading session at $15.93.  

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

The stock has an F grade for Stability and a D for Sentiment, Quality, and Value. It is ranked last in the Travel – Cruises industry. We have also rated NCLH for Growth and Momentum. Get all NCLH ratings here.

CCL shares were trading at $8.91 per share on Friday afternoon, up $0.26 (+3.01%). Year-to-date, CCL has declined -55.72%, versus a -17.42% rise in the benchmark S&P 500 index during the same period.

About the Author: Rashmi Kumari

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions. More...

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