Stubbornly high inflation has compelled Americans to cut their discretionary spending, including travel. In addition, recession fears might further decelerate travel demand, harming the cruise industry’s growth. Mastercard believes the boost from pent-up demand for travel will diminish going forward in 2023.

Moreover, consecutive federal rate hikes are expected to keep cruise companies under pressure. Debt-loaded companies might find it challenging to recover amid a broader economic downturn. Interest rates are now at the highest since 2007, and the Fed is expected to hit a 5.5-5.75 percent range for interest rates in 2023, the highest since 2000.

Therefore, fundamentally weak cruise liner stocks Royal Caribbean Cruises Ltd. (RCL), Carnival Corporation & plc (CCL), and Norwegian Cruise Line Holdings Ltd. (NCLH) might be best avoided in 2023.

Royal Caribbean Cruises Ltd. (RCL)

RCL 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.

RCL’s forward EV/Sales of 3.16x is 156.2% higher than the industry average of 1.23x. Its forward Price/Sales multiple of 1.44 is 51.2% higher than the industry average of 0.96.

RCL’s trailing-12-month gross profit margin of 25.18% is 28.7% lower than the 35.33% industry average. Its trailing-12-month net income margin of negative 24.39% compares to the 4.81% industry average.

RCL’s total cruise operating expenses increased 57% year-over-year to $1.78 billion during the fourth quarter that ended December 31, 2022. Its current asset came in at $3.21 billion for the period that ended December 31, 2022, compared to $3.60 billion for the period that ended December 31, 2021.

Its current liabilities came in at $8.57 billion, compared to $7.29 billion for the same period.

Analysts expect RCL’s EPS to be negative $0.72 for the quarter ending March 2023. Its EPS is expected to fall 160.4% per annum for the next five years. The stock has declined 14.2% over the past year to close its last trading session at $73.03.

RCL’s poor fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

RCL is also graded a D in Stability and Quality. It is ranked #2 out of 4 stocks in the F-rated Travel – Cruises industry. Click here for the additional POWR Ratings for Growth, Momentum, Value, and Sentiment for RCL.

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 forward EV/Sales of 2.19x is 78% higher than the industry average of 1.23x. Its forward EV/EBITDA multiple of 10.94 is 9.9% higher than the industry average of 9.96.

CCL’s trailing-12-month gross profit margin of 31.31% is 11.4% lower than the 35.33% industry average. Its trailing-12-month net income margin of negative 50.07% compares to the 4.81% industry average.

For the fiscal fourth quarter that ended November 30, 2022, CCL’s operating costs and expenses increased 56.4% year-over-year to $4.98 billion. Its current asset came in at $7.49 billion for the period that ended November 30, 2022, compared to $10.13 billion for the period that ended November 30, 2021.

Its current liabilities came in at $10.61 billion, compared to $10.41 billion for the same period.

CCL’s EPS is expected to be negative $0.61 for the quarter ending February 2023. Also, it missed EPS estimates in three of the four trailing quarters. Over the past year, the stock has lost 49.6% to close the last trading session at $11.29.

CCL has an overall rating of D, equating to a Sell in our POWR Ratings system. The stock also has an F grade for Stability and a D for Sentiment and Quality. It is ranked #3 in the same industry. Click here to see the POWR Ratings of CCL (Growth, Value, and Momentum).

Norwegian Cruise Line Holdings Ltd. (NCLH)

NCLH operates the Norwegian Cruise Line; Oceania Cruises; and Regent Seven Seas Cruises brands. It distributes its products through retail/travel advisors, onboard cruise sales channels, meetings, incentives, and charters.

NCLH’s forward EV/Sales of 4.33x is 250.3% higher than the industry average of 1.24x. Its forward Price/Sales multiple of 1.54 is 61.1% higher than the industry average of 0.96.

NCLH’s trailing-12-month gross profit margin of 1.23% is 96.5% lower than the 35.33% industry average. Its trailing-12-month net income margin of negative 88.15% compares to the 4.81% industry average.

NCLH’s total cruise operating expenses increased 181.7% year-over-year to $1.24 billion in the third quarter ending September 30, 2022. Its current asset came in at $2.16 billion for the period that ended September 30, 2022, compared to $3.30 billion for the period that ended December 31, 2021.

Its current liabilities came in at $4.66 billion, compared to $3.73 billion for the same period.

Street expects NCLH’s EPS to be negative $0.33 for the quarter ending March 2023. The company failed to surpass the EPS estimates in three of the trailing four quarters. The stock has lost 19% over the past year to close the last trading session at $17.63.

NCLH’s POWR Ratings reflect its bleak outlook. It has an overall F rating, which equates to a Strong Sell in our proprietary rating system. It also has an F grade for Stability and Quality and a D for Value and Sentiment. NCLH is ranked the last in the same industry.

To access the additional ratings for NCLH for Growth and Momentum, click here.

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RCL shares were trading at $71.79 per share on Tuesday morning, down $1.24 (-1.70%). Year-to-date, RCL has gained 45.24%, versus a 5.01% 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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