After some recovery from the COVID-19 disruptions, cruise ships are experiencing troubled waters again. Despite the solid demand with easing travel restrictions, rising inflation, higher fuel costs, and a potential recession have marred the industry’s growth. As the Fed remains adamant about increasing interest rates in the coming months, the rising interest expense of high-debt cruise ship operators could affect their financials.
The two-year treasury yield touched its highest level in 15 years. Rising bond yields indicate that the government will continue to raise interest rates aggressively, thereby making the debts more expensive. Moreover, reduced dictionary spending on concerns over a possible recession will dampen the top line of cruise ship operators.
Amid this backdrop, it could be wise to avoid cruise shipping stocks Carnival Corporation & plc (CCL) and Royal Caribbean Cruises Ltd. (RCL), given their poor fundamentals and growth prospects.
Carnival Corporation & plc (CCL)
CCL operates as a leisure travel company. It owns and operates hotels, lodges, glass-domed railcars, and motor coaches and offers port destinations and other services. The company operates in the United States, Canada, Continental Europe, the United Kingdom, Australia, New Zealand, Asia, and internationally.
On August 17, 2022, 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 weak debt profile.
For its fiscal second quarter ended May 31, 2022, CCL’s operating loss and net loss came in at $1.47 billion and $1.83 billion, narrowing 8.8% and 11.5% from the year-ago period, respectively. The company’s loss per share came in at $1.61, down 12% from the prior-year period. Also, its adjusted EBITDA loss narrowed 9.3% year-over-year to $928 million.
Street expects its EPS for fiscal 2022 to remain negative. The stock has slumped 61% over the past year to close the last trading session at $9.37.
CCL’s POWR Ratings reflect this bleak outlook. It has an overall rating of D, equating 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.
It has an F grade for Stability and Sentiment and a D for Value and Quality. Within the F-rated Travel - Cruises industry, it is ranked #3 out of 4 stocks. To see the other ratings of CCL for Growth and Momentum, click here.
Royal Caribbean Cruises Ltd. (RCL)
RCL is a cruise company that owns and operates three global cruise vacation brands: Royal Caribbean International, Celebrity Cruises, and Silversea Cruises, comprising a range of itineraries to various destinations. 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, 2022, RCL announced the pricing of upsized $1.25 billion convertible senior notes offering due 2027 to refinance near-term debt maturities. This will increase the company’s total debt and interest burden.
RCL’s total cruise operating expenses for the fiscal second quarter ended June 30, 2022, increased 298% year-over-year to $1.69 billion. Its operating loss narrowed 78.6% from the year-ago value to $218.64 million. The company’s adjusted net loss came in at $530 million, narrowing 58.8% from the year-ago period, while adjusted loss per share came in at $2.08, down 58.9% from the year-ago period.
Analysts expect RCL’s EPS to be negative for the fiscal fourth quarter ending December 31, 2022. Over the past year, the stock has lost 50.6% to close the last trading session at $41.
RCL’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of D, equating to a Sell in our proprietary rating system.
It has an F grade for Stability and a D for Value, Sentiment, and Quality. It is ranked #2 in the same industry. Click here to see the other ratings of RCL for Growth and Momentum.
CCL shares were trading at $9.40 per share on Tuesday afternoon, up $0.03 (+0.32%). Year-to-date, CCL has declined -53.28%, versus a -17.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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