Despite the boost in bookings in the third quarter ended August 31, leading cruise company Carnival Corporation & plc (CCL) missed its Wall Street EPS and revenue estimates. While analysts expected a loss per share of $0.14, the company reported a loss per share of $0.58. Its revenue missed the consensus estimates by 12.7%.

Given the seasonality of the business, the company expects a net loss and breakeven to slightly negative adjusted EBITDA for the fourth quarter ended November 30, 2022. Moreover, amid lingering supply chain issues, CCL’s Carnival Cruise Line announced it is postponing the inaugural voyage of Carnival Jubilee because of shipyard delays.

CCL has a total debt of $35.29 billion. Additionally, the company announced in October that its subsidiary, Carnival Holdings Limited, had commenced a private offering of $1.25 billion aggregate principal amount of Senior Priority Notes due 2028.

CCL has lost 55.2% year-to-date and 15% over the past three months, closing its last trading session at $9.01. The stock is trading below its 200-day moving average of 12.10.

Here is what could shape CCL’s performance in the near term:

Disappointing Financials

CCL’s operating costs and expenses increased 76.1% year-over-year to $4.58 billion for the third quarter ended August 31, 2022. Its adjusted net loss came in at $688 million. The company’s loss per share came in at $0.65.

Its fuel expenses rose 267% year-over-year to $668 million, while its payroll expenses came in at $563 million, up 50.1% year-over-year.

Mixed Valuation

CCL’s forward EV/Sales multiple of 4.10x is 266% higher than the industry average of 1.12x. Its forward Price/Sales multiple of 1.08x is 25.7% higher than the industry average of 0.86x.

However, its trailing 12-month Price/Book of 1.35x is 33.3% lower than the industry average of 2.03x.

Poor Profitability

CCL’s trailing-12-month gross profit margin of 25.55% is 27.85% lower than the industry average of 35.41%. Its trailing-12-month asset turnover ratio of 0.18% is 81.98% lower than the industry average of 1.01%.

Furthermore, its trailing-12-month ROCE, ROTC, and ROTA of negative 61.23%, 6.64%, and 13.70% are lower than the industry averages of 12.81%, 6.59%, and 4.36%, respectively.

POWR Ratings Reflect Bleak Prospects

CCL has an overall rating of F, equating to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CCL has an F grade for Stability, consistent with its high 60-month beta of 2.14.

It has a D grade for Quality, in sync with its low-profit margins, and its Value of grade D justifies its lofty valuations.

CCL is ranked #2 out of 4 stocks in the F-rated Travel- Cruises industry.

Click here for the additional POWR Ratings for CCL for Growth, Momentum, and Sentiment.

Bottom Line

Amid high-interest rates and sky-high inflation, the company’s huge debt position is a serious concern. Moreover, lingering supply chain issues are hampering its operating capability. Given its bleak financials and low profitability, the stock might be best avoided now.

CCL shares were trading at $8.90 per share on Tuesday afternoon, down $0.11 (-1.22%). Year-to-date, CCL has declined -55.77%, versus a -14.18% rise in the benchmark S&P 500 index during the same period.

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.

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