The rapid spread of omicron and consequent travel restrictions have created obstructions to the growth of the travel and tourism industry lately. Moreover, the debt is mounting for the companies in this space amid the low-interest-rate environment.

While booking cancellations, rising fuel prices, and staffing shortages are major near-term concerns for the travel industry, the situation is expected to improve later this year, with COVID-19 becoming an easily treatable disease.

However, travel stocks Carnival Corporation & plc (CCL), Royal Caribbean Cruises Ltd. (RCL), United Airlines Holdings, Inc. (UAL), and Spirit Airlines, Inc. (SAVE) look overvalued at the current price levels considering their bleak growth prospects. So, these stocks are best avoided now.

Carnival Corporation & plc (CCL)

CCL is a leisure travel company that offers cruise services and vacations. The company provides port destinations and other services and owns and operates hotels, lodges, glass-domed railcars, and motor coaches. It sells its cruises primarily through travel agents and tour operators.

In a business update for its fiscal 2021 fourth quarter ended November 30, 2021, CCL’s operating loss came in at $1.89 billion, indicating a 15.3% rise from the prior-year period. While its adjusted net loss increased 5% year-over-year to $1.96 billion, its loss per share decreased 4.2% to $2.31. As of November 30, 2021, the company had $9.14 billion in cash, cash equivalents, and short-term investments.

Analysts expect the company’s EPS to remain negative in the fiscal year 2022 ended November 30, 2021. Over the past three months, the stock has lost 7.3% and closed yesterday’s trading session at $20.80, down 32.7% from its 52-week high of $31.52.

In terms of forward EV/Sales, CCL is currently trading at 3x, 128.8% higher than the 1.31x industry average. In terms of forward EV/EBIT, CCL is currently trading at 184.09x, 1296.4% higher than the industry average of 13.18x.

CCL’s weak prospects are reflected in its POWR Ratings. The stock has an overall rating of F, equating to a Strong 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 has an F grade for Value, Sentiment, Quality, and Stability. To see additional POWR Ratings for CCL’s Growth and Momentum, click here. Of the four stocks in the F-rated Travel – Cruises industry, CCL is ranked #2.

Royal Caribbean Cruises Ltd. (RCL)

RCL is a cruise company worldwide that operates cruises under the Royal Caribbean International, Celebrity Cruises, Azamara, and Silversea Cruises brands, which comprise a range of itineraries that call on approximately 1,000 destinations.

On January 6, 2022, RCL’s Royal Caribbean International segment revealed the 2023 European summer lineup of nine award-winning ships that will visit landmark destinations in more than 25 countries, beginning in May 2023. Offering customers a choice from 35 unique itineraries and a diverse set of ships, RCL expects to witness advanced bookings in the coming months.

For its fiscal 2021 third quarter ended September 30, 2021, RCL’s operating loss came in at $1.01 billion, representing a marginal rise from the year-ago period. RCL’s adjusted net loss came in at $1.25 billion, indicating a 3.8% rise from the prior-year period. Its adjusted net loss per share decreased 12.6% year-over-year to $4.91. As of September 30, 2021, the company had $3.29 billion in cash and cash equivalents.

Analysts expect the stock’s EPS to remain negative in fiscal 2021 ended December 31, 2021. The consensus revenue estimate of $1.71 billion for the same fiscal year 2021 represents a 22.8% rise from the prior-year period.

Over the past three months, the stock has lost 3.3% to end yesterday’s trading session at $81.18, down 18.2% from its 52-week high of $99.24.

RCL’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.

RCL has an F grade for Value and Stability and a D grade for Sentiment and Quality. In addition to the POWR Rating grades I’ve highlighted, one can see RCL ratings for Growth and Momentum here. The stock is ranked #3 in the Travel – Cruises industry.

United Airlines Holdings, Inc. (UAL)

UAL and its subsidiaries provide air transportation services internationally. The company transports people and cargo through its mainline and regional fleets. It also sells fuel and offers third parties catering, ground handling, and maintenance services.

On December 13, 2021, UAL and Virgin Australia Group, an Australian-based airline, announced a new partnership that will add more benefits for both MileagePlus and Velocity Frequent Flyer members and access to more one-stop connections to cities across the U.S., Australia, Mexico, the Caribbean, and South America. Adding Virgin Australia Group’s comprehensive network extends UAL’s presence between the U.S. and Australia.

UAL’s adjusted operating loss for its fiscal 2021 fourth quarter ended December 31, 2021, came in at $352 million, indicating an 84.6% decline from the prior-year period. Its adjusted net income came in at $520 million, representing a 75% year-over-year decline. Its adjusted loss per share decreased 77.1% year-over-year to $1.60. The company had $18.28 billion in cash and cash equivalents as of December 31, 2021.

Analysts expect the company’s EPS to decline at a rate of 129.1% per annum over the next five years. UAL has lost 6.7% over the past three months and closed yesterday’s trading session at $42.88, down 32.7% from its 52-week high of $63.70. UAL’s 18.75x forward EV/EBIT is 7.5% higher than the industry average of 17.44x.

UAL’s POWR Ratings reflect this bleak outlook. The stock has an F grade for Stability and a D grade for Sentiment. Click here to see the additional ratings for UAL (Growth, Value, Quality, and Momentum). UAL is ranked #21 of 31 stocks in the F-rated Airlines industry.

Spirit Airlines, Inc. (SAVE)

SAVE acts as an airline company that offers travel insurance, onboard beverages and snacks, vacation packages, carry-on and checked baggage, online booking, and other services. The company’s ultra-low-cost carrier (ULCC) business model provides customers with low, unbundled base fares with a range of optional services. It offers tickets through its call centers and airport ticket counters and online through spirit.com, traditional travel agents, and electronic global distribution systems.

On December 14, 2021, SAVE announced the addition of Memphis to its route map, launching three daily, nonstop routes to Las Vegas and Orlando in April 2022, followed by Los Angeles in June 2022. The addition of Memphis provides SAVE’s passengers with more low-cost travel options to popular leisure destinations, and the company expects to benefit from this promising market.

For its fiscal 2021 third quarter, ended September 30, 2021, SAVE’s adjusted net income came in at $64.86 million, representing a 73.8% year-over-year decline. The company’s adjusted net loss came in at $74.65 million, down 65.4% from the prior-year period. Its adjusted loss per share came in at $0.69, indicating a 70.3% decline from the year-ago period. The company had $1.53 billion in cash and cash equivalents as of September 30, 2021.

Analysts expect the company’s EPS to remain negative in the fiscal year 2021 ended December 31, 2021. The company’s EPS is expected to decline at a 48.8% rate per annum over the next five years.

Over the past three months, the stock has lost marginally to end yesterday’s trading session at $23.06, down 43.4% from its 52-week high of $40.77.

SAVE’s forward EV/EBITDA ratio of 63.05 is 402.7% higher than the 12.54x industry average. In terms of forward EV/Sales, SAVE is currently trading at 2.11x, 3.5% higher than the industry average of 2.04x.

SAVE’s POWR Ratings are consistent with this bleak outlook. SAVE has an overall rating of D, which equates to Sell in our proprietary rating system.

SAVE has a D grade for Stability and Sentiment. In addition to the POWR Rating grades I’ve highlighted, one can see SAVE’s ratings for Growth, Quality, Momentum, and Value here. The stock is ranked #23 in the Airlines industry.

CCL shares were trading at $20.00 per share on Friday afternoon, down $0.80 (-3.85%). Year-to-date, CCL has declined -0.60%, versus a -7.54% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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