The cruise industry is facing challenges as a result of macroeconomic uncertainty, decreasing consumer spending, which is reducing demand for vacations and putting pressure on companies to offer competitive prices.
So, I think it could be wise to wait for a better entry point in Carnival Corporation & plc (CCL) for reasons discussed throughout this article. However, Norwegian Cruise Line Holdings Ltd. (NCLH) is best avoided considering its weak fundamentals.
As a luxury form of travel, the cruise industry is heavily reliant on consumer spending and discretionary money. People are more likely to invest in a cruise holiday when the economy is prospering, and they have more spare income. Consumers may prioritize necessary expenses over leisure activities such as cruising during economic downturns or periods of financial uncertainty.
According to Statista, there is probability of 46.1% that the United States will fall into an economic recession by October 2024.
While there may be potential for a recovery in the future, CCL has been facing numerous challenges. On the other hand, NCLH has been struggling with high debt levels and a slower recovery compared to its competitors, making it a riskier investment option at this time.
Let’s delve deeper into the fundamentals of the featured stocks.
Stock to Hold:
Carnival Corporation & plc (CCL)
CCL engages in the provision of leisure travel services. The company operates a fleet of more than 90 ships that visit approximately 700 ports under AIDA Cruises, Carnival Cruise Line, Costa Cruises, Cunard, Holland America Line, Princess Cruises, P&O Cruises (Australia), P&O Cruises (UK), and Seabourn brand names.
CCL’s trailing-12-month EBITDA margin of 15.99% is 45.2% higher than the 11.01% industry average. However, its trailing-12-month net income margin of negative 8.11% compares to the 4.40% industry average.
During the third quarter that ended August 31, 2023, CCL’s revenues increased 59.2% year-over-year to $6.85 billion. Its net income and earnings per share came in at $1.07 billion and $0.79.
However, the company’s total current assets were $4.68 billion as of August 31, 2023, compared to $7.49 billion as of November 30, 2022. its total current liabilities came in at $11.01 billion, compared to $10.61 billion for the same period.
The consensus revenue estimate of 21.46 billion for the year ending November 2023 represents a 76.4% increase year-over-year. Its EPS is expected to grow 98.3% year-over-year to negative $0.08 for the same period. The stock has gained 53.9% over the past year to close the last trading session at $14.57.
CCL’s POWR Ratings reflect this uncertain outlook. The stock has an overall C rating, translating to Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CCL has a C grade for Value, Momentum, Sentiment and Quality. It is ranked #3 out of 4 stocks in the Travel – Cruises industry. Click here for the additional POWR Ratings for Growth and Stability for CCL.
Stock to Sell:
Norwegian Cruise Line Holdings Ltd. (NCLH)
NCLH runs as a cruise company in North America, Europe, the Asia-Pacific, and internationally. It operates the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands. It provides itineraries ranging from three days to 180-day calling on various locations. NCLH distributes its products through retail/travel advisors and onboard cruise sales channels.
NCLH’s trailing-12-month gross profit margin of 33.61% is 5.7% lower than the 35.65% industry average. Its trailing-12-month EBIT margin of 6.50% is 12.2% lower than the 7.40% industry average.
NCLH’s total cruise operating expenses increased 19.7% year-over-year to $1.48 billion in the third quarter ending September 30, 2022. Its current asset came in at $1.61 billion for the period that ended September 30, 2022, compared to $1.87 billion for the period that ended December 31, 2022.
Its current liabilities came in at $5.40 billion, compared to $5.05 billion for the same period.
Analysts expect NCLH’s EPS to come in at negative $0.13 for the fiscal quarter ending December 2023. The stock has lost 17.1% over the past nine months to close the last trading session at $14.62.
NCLH’s POWR Ratings reflect its bleak outlook. It has an overall D rating, which equates to a Sell in our proprietary rating system. It also has an F grade for Stability and a D for Sentiment and Quality. NCLH is ranked last in the same industry.
To access the additional ratings for NCLH for Growth, Value and Momentum, click here.
What To Do Next?
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CCL shares were trading at $14.24 per share on Tuesday morning, down $0.33 (-2.26%). Year-to-date, CCL has gained 76.67%, versus a 19.64% 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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