Cruise tourism took a setback due to the pandemic, which resulted in a massive loss of revenue. However, the demand slowly ticked up as the U.S. Center for Disease Control lifted its Covid-19 guidelines for cruise ships. But the cruise companies are in troubled waters again due to surging inflation, the Fed’s aggressive rate hike campaign, and a slowing economy. “There’s a lot of one step forward, one step back going on,” said Truist analyst Patrick Scholes. 

Moreover, shares of major cruise companies plummeted after the Fed announced its third consecutive 75-basis point rate hike last week, raising worries about their ability to pay off hefty debts and recover amid the economic turmoil. According to Truist, RCL holds $25 billion in debt while CCL owes $35 billion as of September 1.

Amid this backdrop, it could be wise to avoid cruise stocks Royal Caribbean Cruises Ltd. (RCL) and Carnival Corporation & plc (CCL), given their poor fundamentals.

Royal Caribbean Cruises Ltd. (RCL)

RCL, the world’s second-largest cruise vacation company, operates cruises under the Royal Caribbean International, Celebrity Cruises, Azamara, and Silversea Cruises brands worldwide. 

For the fiscal quarter ended June 2022, RCL’s operating loss came in at $218.64 million. Net loss and loss per share came in at $521.58 million and $2.05 as compared to $1.35 billion and $5.29 in the year-ago period.

The consensus EPS estimate for the ongoing fiscal year came in at a negative $6.93. RCL missed the EPS estimates in three of the trailing four quarters.

In terms of its forward EV/Sales, RCL is currently trading at 3.71x, 262.1% higher than the industry average of 1.02x. Its forward EV/EBITDA multiple of 39.90 is 389.6% higher than the industry average of 8.15.

The stock has declined 50.5% over the past year to close the last trading session at $45.76.

RCL’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, 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.

RCL also has a Stability grade of F and a Value, Sentiment, and Quality grade of D. In the 4-stock F-rated Travel – Cruises industry, it is ranked #3.

Click here to see the additional POWR Ratings for RCL (Momentum and Growth).

Carnival Corporation & plc (CCL)

CCL, a leader in contemporary cruising, operates as a leisure travel company in the United States and internationally. Its ships visit port calls under the brand names Carnival Cruise Line, Princess Cruises, Holland America Line, P&O Cruises (Australia), Seabourn, Costa Cruises, AIDA Cruises, P&O Cruises (UK), and Cunard.

The company also provides port destinations and other services, as well as owns and operates hotels, lodges, glass-domed railcars, and motor coaches.

Last month, CCL’s Princess cruises canceled 11 sailings aboard the Diamond Princess due to staffing issues that have been consistent across the cruise industry this year. According to the company, the brand faced “labor challenges” as travelers flocked back to cruises, and its ships resumed sailing with increased occupancy.

For the second quarter ended May 31, 2022, CCL’s operating loss came in at $1.47 billion. The company reported a net loss of $1.83 billion, while its loss per share amounted to $1.61.

CCL’s EPS is expected to come in at a negative $0.29 in the quarter ending November 2022.

CCL’s forward Price/Sales multiple of 0.85 is 6.8% higher than the industry average of 0.80. In terms of its forward EV/Sales, the stock is trading at 2.98x, 190.8% higher than the industry average of 1.02x.

The stock has declined 65.1% over the past year and 54.2% year-to-date to close the last trading session at $9.22.

CCL’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. CCL also has an F grade for Stability and Sentiment and a D for Value and Quality. In the same industry, it is ranked #2.

In addition to the POWR Rating grades we’ve stated above, you can see CCL ratings for Growth and Momentum here.

RCL shares were trading at $47.20 per share on Wednesday morning, up $1.44 (+3.15%). Year-to-date, RCL has declined -38.62%, versus a -22.53% rise in the benchmark S&P 500 index during the same period.

About the Author: Komal Bhattar

Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...

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