Inflation is running at more than three times the Fed’s 2% target, and policymakers are committed to restraining demand through higher borrowing costs to bring demand into better alignment with the available supply of labor, goods, and services.
Kansas City Fed President Esther George said that it might not be possible to reduce such high inflation levels without the economy contracting.
On top of it, an overwhelming majority of money managers think the stock market is set for a period of stagflation in 2023, according to Bank of America. In its most recent survey of fund managers, the bank found that 92% expect a period of high inflation and low economic growth in 2023.
Amid this backdrop, cruise companies are struggling as slowing consumption growth and a cutback on consumers’ discretionary spending threaten to hurt their revenue streams.
So, we believe fundamentally weak stocks Royal Caribbean Cruises Ltd. (RCL), Carnival Corporation & plc (CCL), and Norwegian Cruise Line Holdings Ltd (NCLH) are best avoided.
Royal Caribbean Cruises Ltd. (RCL)
RCL, a cruise company, operates cruises under the Royal Caribbean International, Celebrity Cruises, Azamara, and Silversea Cruises brands worldwide.
RCL’s forward EV/sales of 4.27x is 278.5% higher than the industry average of 1.13x. The stock’s forward EV/EBITDA multiple of 52.85 is 470.6% higher than the industry average of 9.26.
For the third fiscal quarter ended September 30, 2022, RCL’s total cruise operating expenses rose 140.4% year-over-year to $1.96 billion. Its comprehensive loss came in at $208.26 million. Its net cash used in investing activities rose 84% from the prior-year quarter to $2.87 billion.
RCL’s EPS is estimated to come in at a negative $7.17 for the ongoing fiscal year ending December 2022.
The stock has declined 30.6% over the past year to close the last trading session at $57.81. RCL has a 24-monthly beta of 1.61.
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 has an F grade for Stability and a grade of D for Value, Sentiment, and Quality. 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 operates as a leisure travel company. Its ships operate under the Carnival Cruise Line, Princess Cruises, Holland America Line, P&O Cruises (Australia), Seabourn, Costa Cruises, AIDA Cruises, P&O Cruises (UK), and Cunard brand names.
On November 15, CCL announced that the company had priced a private offering of $1 billion aggregate principal amount of its 5.75% convertible senior notes due 2027 as part of its 2024 refinancing plan.
CCL’s forward EV/Sales of 3.38x is 199.4% higher than the industry average of 1.13x. The stock’s forward Price/Sales multiple of 0.98 is 15.1% higher than the industry average of 0.85.
CCL’S operating costs and expenses increased 76.1% year-over-year to $4.59 billion in the fiscal third quarter ended August 31, 2022. It reported an operating loss of $279 million, while its adjusted net loss came in at $688 million during the same period.
Street expects CCL’s EPS to be negative $0.86 for the fiscal fourth quarter ending November. Its consensus revenue estimate is expected to be $4.02 billion in the same quarter.
The stock has declined 55.4% over the past year to close its last trading session at $9.51. It has declined 52.7% year-to-date. CCL has a 24-month beta of 1.87.
This poor outlook is reflected in CCL’s POWR Ratings. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system.
CCL is graded an F in Stability and a D in Value, Sentiment, and Quality. It is ranked #2 in the same industry.
In addition to the POWR Rating grades we’ve stated above, one can see CCL’s ratings for Growth and Momentum here.
Norwegian Cruise Line Holdings Ltd. (NCLH)
NCLH and its subsidiaries operate as a cruise company in North America, Europe, the Asia-Pacific, and internationally. The company operates the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands.
NCLH’s forward EV/Sales of 4.39x is 288.7% higher than the industry average of 1.13x. The stock’s forward Price/Book multiple of 25.57 is 896.6% higher than the industry average of 2.57.
NCLH’s total cruise operating expenses increased 181.7% year-over-year to $1.24 billion in the third quarter ending September 30. Its comprehensive loss amounted to $522.60 million, while its net cash used in investing activities grew 43.6% from the year-ago value to $1.59 billion.
Analysts expect NCLH’s EPS to decrease 45.2% year-over-year to negative $4.42 for the current year ending December. It missed EPS estimates in three of its four trailing quarters.
Over the past year has lost 31.7% to close the last trading session at $16.40. The stock has a 24-month beta of 1.73.
As expected, the stock has an overall F rating, equating to a Strong Sell in our POWR Ratings system. NCLH has an F grade for Stability and Quality and a D for Sentiment and Value. It is ranked last in the Travel – Cruises industry.
We also provide Growth and Momentum grades for NCLH, which you can find here.
RCL shares rose $1.04 (+1.80%) in premarket trading Friday. Year-to-date, RCL has declined -23.60%, versus a -15.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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