Although the travel industry seems to be back in business as the COVID-19 pandemic has subdued, many travel stocks could not ride the wave of pent-up travel demand. Hotel, airline, and cruise stock prices stay static or drop while traveler volumes and bookings rise.
On top of it, inflation is a major cause of concern for the industry, as it drives up prices and affects consumers’ willingness to spend on discretionary travel. Moreover, geopolitical instability and staffing challenges are the other headwinds.
Persistent inflation, along with factors such as high energy prices, labor shortages, and lockdowns in China, will likely delay global business travel spending recovery to pre-pandemic levels.
Amid this backdrop, we think it might be best to avoid fundamentally weak travel stocks Carnival Corporation & plc (CCL) and Royal Caribbean Cruises Ltd. (RCL).
Carnival Corporation & plc (CCL)
CCL operates as a leisure travel company. Its ships operate 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.
On August 17, CCL announced that Carnival Corporation, Carnival plc, and certain of their subsidiaries had entered into separate, privately negotiated exchange agreements pursuant to which the company was expected to exchange $339 million in aggregate principal amount of Existing Notes for $339 million in aggregate principal amount of new 5.75% Convertible Senior Notes due October 2024. On August 22, CCL announced the closing of the offering.
In the second fiscal quarter that ended May 31, CCL’s operating costs and expenses increased 132.7% year-over-year to $3.87 billion. Adjusted EBITDA came in at a negative $928 million. The company’s adjusted net loss amounted to $1.87 billion, and its loss per share amounted to $1.61.
Analysts expect CCL’s EPS to be negative $0.15 for the fiscal third quarter ending August. Its revenue is expected to come in at $4.91 billion in the same quarter.
The stock has declined 54.3% over the past year to close its last trading session at $10.76. It has declined 46.5% year-to-date.
This bleak outlook is reflected in CCL’s POWR Ratings. The stock has an overall D rating, which equates 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 is graded an F in Stability and Sentiment and a D in Value and Quality. It is ranked #2 out of the four stocks in the F-rated Travel – Cruises industry.
In addition to the POWR Rating grades we’ve stated above, one can see CCL’s ratings for Growth and Momentum here.
Royal Caribbean Cruises Ltd. (RCL)
RCL operates as a worldwide cruise company. It owns and operates global cruise vacation brands, including Royal Caribbean International, Celebrity Cruises, Azamara, and Silversea Cruises.
On August 18, RCL announced the completion of its private offering of $1.25 billion in aggregate principal amount of 11.625% senior unsecured notes due 2027. The company expects to use the net proceeds from the offering to repay principal payments on debt maturing in 2022 and 2023.
For the second quarter ended June 30, 2022, RCL reported an adjusted net loss of $521.52 million and $2.08 per share for the second quarter of 2022. Its operating loss came in at $218.64 million.
RCL’s EPS is expected to be $0.20 in the third fiscal quarter ending September 2022, while its revenue is expected to come in at $2.99 billion.
The stock has declined 39.8% over the past year and 34.4% year-to-date to close its last trading session at $50.44.
RCL’s POWR Ratings reflect its poor prospects. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system.
RCL has an F grade for Stability and Sentiment and a D for Value and Quality. RCL is ranked #3 in the same industry.
Click here to see the additional POWR Ratings for RCL (Momentum and Growth).
CCL shares were trading at $10.82 per share on Monday afternoon, up $0.06 (+0.56%). Year-to-date, CCL has declined -46.22%, versus a -17.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor’s degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More…
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