Inflation has forced Americans to reduce their discretionary spending, including travel. So, in this article, I have discussed why cruise line stocks Carnival Corporation & plc (CCL) and Norwegian Cruise Line Holdings Ltd. (NCLH) might be best avoided despite solid growth and momentum.

The cruise industry strongly depends on consumer spending and discretionary money, which fall during a recession. This could result in fewer bookings and lower revenues for cruise lines, making it difficult for them to maintain expansion in such economic conditions.

According to Statista, there is probability of 66% that the United States will fall into an economic recession by July 2024.

Moreover, recurrent federal rate increases are expected to keep cruise lines under pressure. Businesses that are heavily in debt may struggle to recover in the face of a broader economic downturn. The Fed kept its funds rate target of 5.25%-5.5% in July. However, following the FOMC decision, the Fed Chair reiterated the need to raise rates further this year.

Let’s delve deeper into the fundamentals of the featured stocks.

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 2.39x is 104.5% higher than the industry average of 1.17x. Its forward EV/EBITDA multiple of 12.17 is 26.1% higher than the industry average of 9.65.

CCL’s trailing-12-month EBITDA margin of 7.35% is 31.8% lower than the 10.77% industry average. Its trailing-12-month net income margin of negative 19.82% compares to the 4.19% industry average.

During the second quarter that ended May 31, 2023, CCL’s operating expenses increased 23.7% year-over-year to $4.79 billion. Its net loss and loss per share came in at $407 million and $0.32. In addition, the company’s current assets were $6.21 billion as of May 31, 2023, compared to $7.49 billion as of November 30, 2022.

CCL’s revenue has grown at a 1.3% CAGR over the past three years. Over the same time frame, the company’s total assets have increased at a CAGR of 1.4%.

Street expects CCL’s EPS is expected to come in at negative $0.12 for the year ending November 2023. CCL’s shares have gained 66.4% over the past year to close the last trading session at $15.87. Also, the stock is currently trading above its 200-day trading average of $11.87.

CCL’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, translating to Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

CCL has an F grade for Stability and a D for Quality. It is ranked last among four stocks in the F-rated  Travel – Cruises industry. Click here for the additional POWR Ratings for Growth, Value, Sentiment, and Momentum for CCL.

Norwegian Cruise Line Holdings Ltd. (NCLH)

NCLH runs as a cruise company in North America, Europe, the Asia-Pacific, and internationally. It operates the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands. It provides itineraries ranging from three days to 180-day calling on various locations. NCLH distributes its products through retail/travel advisors and onboard cruise sales channels.

NCLH’s forward EV/Sales of 2.37x is 102.7% higher than the industry average of 1.17x. Its forward EV/EBITDA multiple of 10.70 is 10.9% higher than the industry average of 9.65.

NCLH’s trailing-12-month gross profit margin of 28.48% is 19.4% lower than the 35.32% industry average. Its trailing-12-month EBIT margin of negative 2.56% compares to the 7.33% industry average.

NCLH’s total cruise operating expenses increased 28.9% year-over-year to $1.38 billion in the second quarter ending June 30, 2022. Its current asset came in at $1.84 billion for the period that ended June 30, 2022, compared to $1.87 billion for the period that ended December 31, 2022.

Its current liabilities came in at $5.82 billion, compared to $5.05 billion for the same period.

NCLH’s revenue has grown at a 15.4% CAGR over the past three years. Over the same time frame, the company’s total assets have increased at a CAGR of 2.1%.

Analysts expect NCLH’s EPS to come in at negative $0.07 for the fiscal quarter ending March 2024. NCLH’s shares have gained 33.1% over the past year to close the last trading session at $17.10. Also, the stock is currently trading above its 200-day trading average of $16.06.

It has an F grade for Stability and a D for Sentiment and Quality. NCLH is ranked #3 in the same industry.

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

What To Do Next?

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CCL shares were trading at $15.87 per share on Thursday morning, down $0.38 (-2.34%). Year-to-date, CCL has gained 96.90%, versus a 16.00% rise in the benchmark S&P 500 index during the same period.

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.

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