The pandemic caused port closures and a temporary ban on cruises, resulting in a massive loss of revenue for cruise tourism. While the demand has gradually recovered over the past one and a half years, several large operators are still struggling to reach full capacity.

With the beginning of the pandemic, these companies were forced to anchor their cruises to the docks and took heavy debts to survive. The recent decline in discretionary spending due to concerns about a possible recession with the Fed’s hawkish stance will hurt cruise ship operators' bottom lines.

Given this backdrop, cruise ship stocks Carnival Corporation & plc (CCL), Norwegian Cruise Line Holdings Ltd. (NCLH), and Royal Caribbean Cruises Ltd. (RCL) are expected to trail downward due to weak financials, rising costs, and fragile growth prospects. So, these stocks are best avoided now.

Carnival Corporation (CCL)

CCL is the largest cruise line operator in the world. Under the names Carnival Cruise Line, Princess Cruises, Holland America Line, P&O Cruises (Australia), Seabourn, Costa Cruises, AIDA Cruises, P&O Cruises (UK), and Cunard, its ships make approximately 700 port calls.

Last month, CCL’s Princess cruises canceled 11 sailings aboard the Diamond Princess, citing staffing issues that have plagued the cruise industry this year. According to the company, the cruise line has faced "labor challenges" as travelers have returned to cruises, and its ships have resumed sailing with increased occupancy.

In July, CCL announced the completion of its previously announced underwritten public offering of 102,139,621 shares of the company's common stock at a public offering price of $9.95 per share. The company expects to use the net proceeds from the offering for general corporate purposes, including addressing 2023 debt maturities.

During the second quarter ended June May 31, 2022, CCL’s revenue increased significantly year-over-year to $2.40 billion but missed the consensus estimate. Its 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 estimate is expected to remain negative in the current quarter ending August 2022 and fiscal 2022. The stock has declined 53.8% over the past year and 47.5% year-to-date.

CCL's POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of F, which translates 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.

CCL has been graded an F grade for Stability and Sentiment and a D for Value. Within the F-rated Travel – Cruises industry, it is ranked #2 of 4 stocks.

To see additional POWR Ratings for Quality, Growth, and Momentum for CCL, click here.

Royal Caribbean Cruises Ltd. (RCL)

RCL is one of the top cruise line operators. It owns and operates three global cruise vacation brands, including Royal Caribbean International, Celebrity Cruises, and Silversea Cruises. It operated 61 ships as of February 25, 2022.

Last month, RCL announced the completion of its private offering of $1,250,000,000 in aggregate principal amount of 11.625% senior unsecured notes due 2027. Unless redeemed or repurchased earlier, the Notes will mature on August 15, 2027.

The company expects to use the net proceeds from the Notes offering to repay principal payments on debt maturing in 2022 and 2023. Also, the company may use the proceeds to repay borrowings under its revolving credit facilities or other borrowings.

For the second quarter ended June 30, 2022, RCL's total revenue grew significantly year-over-year to $2.18 billion. However, its operating loss came in at $218.64 million. The company reported a net loss of $521.52 million, while its loss per share amounted to $2.05.

RCL’s EPS is expected to decline 164.3% per annum over the next five years. The stock has plummeted 40.6% over the past year and 36.4% year-to-date.

RCL’s poor prospects are also apparent in its POWR Ratings. The stock 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 Sentiment and a D for Value. RCL is ranked #3 in the same industry. Click here to see the additional POWR Ratings for RCL (Momentum, Quality, and Growth).

Norwegian Cruise Line Holdings Ltd. (NCLH)

NCLH is a global cruise company that offers itineraries from its popular brands to various destinations like Europe, Asia, Australia, New Zealand, South America, Africa, Canada, Bermuda, the Caribbean, Alaska, and Hawaii. Its popular brands include Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands.

NCLH’s revenue grew from the year-ago value to $1.19 billion for the second quarter ended June 30, 2022. However, its operating loss came in at $396.80 million. The company reported a net loss of $509.32 million. Its loss per share amounted to $1.22.

Streets expect NCLH’s EPS to decline 165.1% per annum over the next five years and remain negative in the current fiscal year. The stock has declined 39.2% over the past year and 27.3% year-to-date.

NCLH'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. The stock has an F for Stability and Sentiment and a D grade for Quality. In the same industry, it is ranked last.

In addition to the POWR Rating grades I have just highlighted, you can see the NCLH rating for Momentum, Value, and Growth here.

CCL shares were trading at $10.73 per share on Friday afternoon, down $0.19 (-1.74%). Year-to-date, CCL has declined -46.67%, versus a -18.72% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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