2 Cruise Ship Stocks to Short the Rest of 2022

High inflation and the Fed's aggressive stance to combat it have increased the likelihood of a recession. Furthermore, while the cruise sector barely survived the pandemic, an economic downturn might obliterate its liquidity. So, we think it could be wise to avoid the shares of struggling cruise ship stocks Carnival Corporation (CCL) and Norwegian Cruise Line (NCLH). Read on to learn more...

Most cruise lines faced significant losses as a result of COVID-19 pandemic-related restrictions. Although the sector has achieved a strong recovery from the relaxation of travel restrictions and the reopening of the economy, several cruise stocks have suffered.

With business at a halt, several cruise lines were put under pressure, and many went into debt in the interim. Though demand for cruises has subsequently recovered as tourism returns—and large operators are enjoying a strong summer season—many are still facing a delayed recovery to full capacity. High inflation and increasing oil prices are beginning to weigh on the sector in this year's economic downturn.

Furthermore, with a recession looking to be imminent, cruise lines would most certainly suffer from a decline in sales, as consumers often cut back on discretionary spending during a recession. Therefore, we think it could be prudent to avoid fundamentally weak stocks Carnival Corporation & plc (CCL) and Norwegian Cruise Line Holdings Ltd. (NCLH) now.

Carnival Corporation & plc (CCL)

CCL is a leisure travel firm. Its ships visit almost 700 ports worldwide 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 company also owns and runs hotels, lodges, glass-domed railcars, and motor coaches, providing port destinations and other services.

This month, CCL priced its previously announced underwritten public offering of 102,139,621 shares of the company's common stock at $9.95 per share. The underwriter has been granted a 30-day option to acquire up to 15,320,943 additional shares of the company's common stock.

The net proceeds of the sale are expected to be used for general corporate purposes, which might include resolving 2023 debt obligations. This weighed significantly on the stock’s price performance.

CCL's total revenue increased 4702% year-over-year to $2.40 billion in the first quarter ended May 31, 2022. Its loss from operations 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 over this period.

The company's EPS is expected to remain negative in fiscal 2022. The stock has declined 50.9% over the past three months and 4.04% over the past month.

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

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

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 operates the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands.

For the first quarter ended March 31, 2022, NCLH's revenue increased significantly year-over-year to $521.94 million. However, the company’s operating loss grew 20.6% year-over-year to $688.76 million. It reported a net loss of $982.71 million, while its EPS came in at $2.35.

NCLH's EPS is estimated to decline at the rate of 24.1% per annum over the next five years. The stock has declined 53.3% over the past year and 43.4% over the past three months.

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 grade for Stability and Sentiment and a D for Quality. In the Travel – Cruises industry, it is ranked last.

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

CCL shares were trading at $9.21 per share on Monday morning, down $0.05 (-0.54%). Year-to-date, CCL has declined -54.22%, versus a -16.04% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

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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