Carnival Corporation & plc (CCL - Get Rating) functions as a leisure travel company, with its ships visiting approximately 700 ports. 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.

Most cruise operators 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, CCL has lost 53.4% year-to-date.

CCL’s occupancy in the second quarter ended May 31, 2022, rose to 69% from 54% in the previous quarter. More than 90% of the company’s fleet has become operational, and its booking volumes in the second quarter for upcoming sailings were nearly double the bookings in the first quarter. Cash from operations turned positive in April and was positive for the second quarter.

The company believes that several risks and uncertainties may affect its business. Among the risks, COVID-19 may continue to significantly impact its financials and operations as it is expected to affect people’s ability or desire to travel on cruises. Also, the ongoing war in Ukraine might impact its operating costs and profitability.

Rising fuel prices may severely affect the company’s ability to control its cost. Also, high fluctuations in foreign currency exchange rates may affect its financials.

The stock has declined 30.6% over the past month to close the last trading session at $9.38. It is currently trading 65.7% below its 52-week high of $27.39, which it hit on September 27, 2021.

Here’s what could shape CCL’s performance in the near term:

Disappointing Financials

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 $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.

Mixed Analyst Estimates

CCL’s EPS for fiscal 2022 is expected to remain negative. The company’s revenue for fiscal 2022 and 2023 is expected to increase 601.7% and 64.2% year-over-year to $13.39 billion and $21.99 billion, respectively. It failed to surpass Street EPS estimates in each of the trailing four quarters.

Lower-than-industry Profitability

CCL’s trailing-12-month net income margin is negative compared to the 6.52% industry average. Likewise, its trailing-12-month Return on Common Equity is negative compared to the 16.95% industry average. Furthermore, the stock’s 0.11% trailing-12-month asset turnover ratio is 89.3% lower than the industry average of 1.02%.

POWR Ratings Reflect Bleak Prospects

CCL has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CCL has a D grade for Quality, consistent with its negative trailing-12-month EBITDA margin, compared to the 12.11% industry average.

It has an F grade for Stability, in sync with its 2.04 beta.

CCL is ranked #2 out of 4 stocks in the F-rated Travel – Cruises industry. Click here to access CCL’s Growth, Value, Momentum, and Sentiment ratings.

Bottom Line

CCL is currently trading below its 50-day and 200-day moving averages of $13.12 and $18.98, respectively, indicating a downtrend. Despite recovering from the pandemic-led damages, CCL could be subjected to the threat of an economic slowdown. This will further affect the company’s ability to stay afloat as it may hamper its liquidity.

Moreover, given the company’s disappointing financials and lower-than-industry profitability, it could be wise to avoid the stock.

CCL shares fell $0.10 (-1.07%) in premarket trading Wednesday. Year-to-date, CCL has declined -53.88%, versus a -19.01% 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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