After surviving the stormy seas of the pandemic, the cruise shipping industry was beginning to look forward to calmer conditions. The industry seems to be staging a turnaround by banking on pent-up demand and easing travel restrictions. More than 75% of Cruise Lines International Association’s (CLIA) oceangoing member cruise lines’ capacity has returned to service, with almost all projected to be back in the water by late summer.

However, most major cruise shipping companies have reported losses in their latest quarterly results. Many companies went into debt to tide over the halt of business during the pandemic. Moreover, due to the Fed's recent interest rate increases, borrowing costs for these companies have increased. As a result, top-line growth has not been reflected in the bottom line.

Concerns about health, safety, and sustainability have also influenced cruisers toward smaller, less-crowded, and greener ships. Such trends are set to push significant cruise lines to increase their capital expenditures while making their unit economics more challenging. Furthermore, with high inflation and a looming recession, the industry might run into rough weather, with consumers trimming their discretionary expenditure.

Cruise stocks Carnival Corporation & plc (CCL), Royal Caribbean Cruises Ltd. (RCL), Lindblad Expeditions Holdings, Inc. (LIND), and Norwegian Cruise Line Holdings Ltd. (NCLH) do not look well-positioned to survive the headwinds. So, these stocks could be best avoided or shorted now.

Carnival Corporation & plc (CCL)

CCL is one of the frontrunners in the field of global leisure travel. The company runs its ships under the brand-names, including Carnival Cruise Line, Princess Cruises, Holland America Line, P&O Cruises (Australia), Seabourn, Costa Cruises, and AIDA Cruises, P&O Cruises (UK), and Cunard. The company owns and operates hotels, lodges, glass-domed railcars, and motor coaches.

On August 17, CCL announced an extension of the maturity of its outstanding 5.75% Convertible Senior Notes due 2023 to October 2024 as a part of privately negotiated exchange agreements with select holders. This reflects the company’s debt obligations.

On August 4, CCL announced its Service Power Packages upgrades across its global fleet to improve energy savings and reduce fuel consumption. The enhancements include installations across ships from its nine cruise line brands through 2023. It is expected to take a while to benefit from this development.

In the fiscal 2022 second quarter ended May 31, 2022; CCL’s operating loss came in at $1.47 billion. The company reported an adjusted net loss of $1.87 billion, while its loss per share amounted to $1.61 during this period. As of May 31, 2022, the company’s total debt stood at $35.14 billion, compared to $33.23 billion as of November 30, 2021.

Analysts expect CCL’s loss per share to come in at $0.13 for the fiscal 2022 third quarter (ending August 2022). Also, the consensus loss per share estimate for the current year (ending December 2022) is expected to come in at $3.83. The company has missed the consensus revenue estimates in each of the trailing four quarters.

The stock has declined 54.1% over the past six months and 54.4% over the past year to close the last trading session at $9.87.

CCL’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of D, which translates to a 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 grade of F for Stability and a D for Value, Sentiment, and Quality. Within the F-rated Travel – Cruises industry, it is ranked #2 of 4 stocks.

Click here to see additional POWR Ratings for Growth and Momentum for CCL.

Royal Caribbean Cruises Ltd. (RCL)

RCL is the world’s second-largest cruise line operator. The company owns and operates cruises under three brands: Royal Caribbean International; Celebrity Cruises; and Silversea Cruises. It is an end-to-end travel service provider, and its offerings include pre and post hotel stay arrangements and air transportation.

 On August 15, RCL priced its private offering of $1.25 billion of 11.625% senior unsecured notes due 2027. The notes will mature on August 15, 2027. The note offering is expected to increase the company’s debt and interest.

RCL’s cruise operating expenses increased 298% year-over-year to $1.69 billion for the fiscal 2022 second quarter ended June 30, 2022. The company’s operating loss came in at $218.64 million. The company reported a net loss of $521.58 million, while its loss per share amounted to $2.05 during this period.

As of June 30, 2022, the company’s total liabilities stood at $30.54 billion, compared to $27.17 billion as of December 31, 2021.

Analysts expect RCL’s loss per share to come in at $0.63 for the fiscal 2022 third quarter (ending September 2022). In addition, the consensus loss per share estimate is expected to come in at $6.77 for the ongoing year. The company has missed the consensus revenue estimates in three of the trailing four quarters.

RCL’s shares have slumped 48.2% over the past year to close the last trading session at $39.65.

RCL’s underwhelming prospects are reflected in an overall rating of D, which equates to a Sell in our POWR Ratings system. RCL has a grade of F for Stability and D for Value, Sentiment, and Quality. RCL is ranked #3 out of 4 stocks in the F-rated Travel – Cruises industry.

Click here to access RCL’s rating for Growth and Momentum.

Lindblad Expeditions Holdings, Inc. (LIND)

LIND primarily offers expeditions cruising, and land-based adventure travel experiences to remote and exotic places. The company operates through two segments: Lindblad; and Land Experiences.

For the fiscal 2022 second quarter ended June 30, 2022, LIND’s operating loss came in at $19.31 million. Its adjusted EBITDA loss amounted to $6.19 million. The company reported a net loss of $28.56 million, while its loss per share came in at $0.59 during this period.

As of June 30, 2022, the company’s total liabilities stood at $900.53 million, compared to $811.55 million as of December 31, 2021.

Analysts expect LIND to incur a loss per share of $2.09 in the current fiscal year and $0.14 in the next fiscal year. The stock has plunged 24.8% over the past year to close the last trading session at $9.88.

LIND’s slump in performance and prospects is evident from its overall POWR Ratings of D, which equates to a Sell. It has a grade of F for Sentiment and D for Value, Stability, and Quality. However, it is ranked first among four stocks in the same industry.

Click here to access LIND’s rating for Growth and Momentum.

Norwegian Cruise Line Holdings Ltd. (NCLH)

NCLH and its subsidiaries operate as a cruise line in North America, Europe, Asia-Pacific, and globally. The company owns and operates cruises under three brands: Norwegian Cruise Line; Oceania Cruises; and Regent Seven Seas Cruises.

For the second quarter ended June 30, 2022, NCLH’s cruise operating expense increased 329.8% year-over-year to $1.07billion. The company reported an operating loss of $396.80 million. It reported a net loss of $509.32 million, while its loss per share came in at $1.22.

As of June 30, 2022, the company’s total liabilities stood at $18.21 billion, compared to $16.30 billion as of December 31, 2021.

Analysts expect NCLH to incur a loss per share of $0.29 for the current quarter (ending September 2022) and $4.22 for the current year (ending December 2022). Also, the company has missed the consensus revenue estimates in three of the trailing four quarters, which is disappointing.

The stock has declined 42.8% over the past year to close the last trading session at $13.18.

NCLH’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The stock has an F grade for Stability and Sentiment and a D for Quality and Value. In the same industry, it is ranked last among its peers.

In addition to the POWR Rating grades we have provided above, you can see the NCLH’s rating for Momentum and Growth here.

CCL shares rose $0.01 (+0.11%) in after-hours trading Monday. Year-to-date, CCL has declined -53.33%, versus a -12.32% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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