Cruise tourism took a setback because of the pandemic, which led to port closures and the temporary ban of cruises leading to a massive loss of revenues. Though the demand has eventually recovered over the past year, several large operators are struggling to reach their full capacity.

The ongoing Russia-Ukraine war and increasing oil prices are weighing on the sector’s near-term prospects. Also, fears of an impending recession have reduced cruise line sales as consumers cut back on their leisure spending.

According to BofA Global Research, major cruise lines saw capacity-weighted sequential ticket pricing declines from May to June. And pricing softness is expected to be extending into 2023 and 2024. “The strong booked position cited by most cruise lines seems to be eroding,” BofA researchers stated.

Given this backdrop, fundamentally weak cruise ship stocks, Royal Caribbean Cruises Ltd. (RCL) and Norwegian Cruise Line Holdings Ltd. (NCLH) might be best to sell short or avoid for the rest of the year.

Royal Caribbean Cruises Ltd. (RCL)

RCL, a cruise 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 compared to $1.35 billion and $5.29 in the year-ago period.

The consensus EPS estimate for the fiscal year ended December 2022 came in at a negative $6.92. RCL missed the consensus EPS estimates in three of the trailing four quarters.

In terms of its forward EV/Sales, RCL is currently trading at 3.58x, 200.40% higher than the industry average of 1.19x. Its forward EV/EBITDA multiple of 38.54 is 334.4% higher than the industry average of 8.87.

The stock has declined 48.7% year-to-date to close the last trading session at $39.45.

RCL’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, equating to 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 #2. Click here to see the additional POWR Ratings for RCL (Momentum and Growth).

Norwegian Cruise Line Holdings Ltd. (NCLH)

NCLH, a cruise company, operates the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands in North America, Europe, and internationally.

For the fiscal first quarter ended March 31, NCLH’s operating loss increased 20.6% year-over-year to $688.76 million. Net loss and loss per share came in at $982.71 million and $2.35 compared to $1.37 billion and $4.16 a year ago.

Street expects its EPS to come in negative at $0.83 for the fiscal quarter ended June 2022.

In terms of its forward Price/Sales, NCLH is currently trading at 1.01x, 4.1% higher than the industry average of 0.97x. Its forward EV/EBITDA multiple of 38.15 is 330% higher than the industry average of 8.87.

The stock has slumped 51.6% over the past nine months and 42.6% over the past year to close the last trading session at $12.98.

It’s no surprise that NCLH has an overall F rating, which translates to Strong Sell in our POWR Ratings system.

NCLH also has an F grade for Stability and a D for Value, Sentiment, and Quality. It is ranked last in the same industry. To see the additional POWR Ratings for Growth, and Momentum for NCLH, click here.

RCL shares were trading at $40.25 per share on Friday afternoon, up $0.80 (+2.03%). Year-to-date, RCL has declined -47.66%, versus a -12.56% 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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