Carnival Corporation & plc (CCL) is a leisure travel company. The company’s ships visit several ports 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.

The demand recovery toward pre-pandemic operating metrics for cruise ship operators is expected to be affected by the hot inflation numbers, high fuel costs, and recessionary fears. The credit profile improvement of cruise operators is also expected to be challenged by increased borrowing costs.

Over the past year, CCL’s stock has declined 58.3%. It has declined 52.9% year-to-date to close its last trading session at $9.47. However, it has gained 5.1% over the past month.

Here are the factors that could affect CCL’s performance in the near term:

Fleet Upgrades

On August 4, CCL announced the rollout of its Service Power Packages upgrades across its global fleet, aimed at improving energy savings and reducing fuel consumption. The enhancements include installations across ships from its nine cruise line brands, ongoing through 2023.

Alongside environmental and sustainability benefits, the upgrades are expected to provide over $150 million in annual fuel cost savings upon completion.

Weak Growth Story

Despite its total assets growing at a 6% CAGR over the past three years, CCL’s revenue has declined at a CAGR of 33.4% over the past three years and at a CAGR of 19% over the past five years. Its tangible book value declined 31.2% over the past three years.

Negative Profit Margins

CCL’s trailing-12-month gross profit margin of 9.03% is 75.3% lower than the industry average of 36.56%. Its trailing-12-month EBIT margin and net income margin of a negative 105.00% and 156.77% are significantly lower than their respective industry averages of 8.33% and 5.99%.

The stock’s trailing-12-month ROE, ROTC, and ROA of negative 70.26%, 8.11%, and 17.33% compare to their respective industry averages of 15.82%, 7.03%, and 5.23%.

POWR Ratings Reflect Bleak Prospects

CCL’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.

CCL has a Stability grade of F in sync with its five-year monthly beta of 2.09. The stock has a D grade for Quality, which is justified by its negative profit margins.

In the four-stock Travel – Cruises industry, it is ranked #3. The industry is rated F.

Click here to see the additional POWR Ratings for CCL (Growth, Value, Momentum, and Sentiment).

View all the stocks in the Travel – Cruises industry here.

Bottom Line

Although CCL’s fleet upgradation is expected to benefit the company by saving fuel costs, it might take some time before it realizes those gains. Moreover, given its bleak topline growth and negative profit margins, I think the stock might be best avoided now.

CCL shares were trading at $10.13 per share on Wednesday morning, up $0.66 (+6.97%). Year-to-date, CCL has declined -49.65%, versus a -11.27% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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