We recently published a list of 10 Worst Cruise Stocks to Buy Now According to Short Sellers. In this article, we are going to take a look at where Carnival Corporation & plc (NYSE:CCL) stands against other worst cruise stocks according to short sellers.
The cruise industry accelerated after taking a significant hit during the COVID-19 pandemic. As per the Cruise Lines International Association (CLIA), ~35.7 million passengers are anticipated to set sail in 2024. This translates to 6% growth as compared to 2019. JP Morgan Research highlighted that major cruise lines enjoyed a successful 2024 wave season between January and March when operators provided the best deals. CLIA highlighted that, in 2023, the passenger volume touched a record 31.7 million, exhibiting a rise of 7% over 2019 levels.
Wall Street experts believe that travel exchange-traded funds (ETFs) are well-placed to soar on the back of a resurgence in consumer demand for travel-related activities, supported by post-pandemic recovery and changing consumer behaviors. Amidst some short-term challenges, the long-term outlook for the travel sector is positive as a result of demographic shifts and an increased preference for experiential spending.
Positive Demographic Shifts Should Be a Primary Growth Enabler
Earlier, Baby Boomers used to make up the core consumer base for the broader cruise industry. Today, however, an increased number of younger travelers continue to come on board. As per CLIA, ~73% of Millennials and Gen X travelers mentioned that they would consider a cruise vacation. Also, a renowned cruise company has recently mentioned that half of its cruise customers are Millennials or younger. This is because of rising affluence. Moreover, according to the bank’s research, the spending capacity of Millennial customers has seen an increase of ~49% since 2019. Today, the average net worth of an individual aged 40 or under sits at ~$259K.
The cruises continue to attract more first-time passengers. The cruise companies are seeing “new-to-cruise” in their 2025 bookings, with this customer category rising by more than 30% versus a year ago.
The bank believes that cruise operators are improving and modernizing their offerings to make them appealing and highlighted that key operators continue to invest in new hardware, notably mega-ships and private destinations. This has been driving more eyeballs to the broader cruise and tourism industry, accelerating new-to-cruise acquisition. CLIA recently highlighted that the cruise industry has been deploying billions in new ships and engines which give flexibility to use low to zero-GHG fuels with little to no engine modification.
Cruises Over Land-based Activities
According to a survey by the bank’s research division held in April, only ~29% of respondents have excess savings. Notably, ~45% of the respondents are expected to spend less in discretionary categories over the upcoming 12 months. This implies an increased cautious behavior even in the environment of moderating inflation.
This scenario is placing cruise voyages, that are cheaper than land-based vacations, in a strong position. Consumers are focused on value within discretionary categories. The value spread between cruises and land-based alternatives stood at 25%-30% today as compared to 10%-15% pre-pandemic. Despite higher inflation, cruise lines continue to focus on improved experiences, without compromising quality or service. This should further enhance their value.
Despite a tough consumer spending environment, both ticket and onboard prices increased over the past few months. This means that the demand backdrop is strong for the overall cruise industry. The bank’s research shows that more than 85% of tickets have been booked for 2024, with a focus now turning to 2025 and bookings already exceeding historical levels. Moreover, the industry should grow revenues by high-single digits over the upcoming 5 years, tapping ~3.8% of the global vacation market by 2028.
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A luxurious cruise ship sailing the deep blue sea, sun glistening off its decks.
Carnival Corporation & plc (NYSE:CCL)
Short % of Float (As of 15 August): 9.46%
Number of Hedge Fund Holders: 53
Carnival Corporation & plc (NYSE:CCL) owns and operates cruise ships providing cruises to all major vacation destinations such as North America, United Kingdom, Germany, Southern Europe, South America, and Asia Pacific.
The short sellers believe that Carnival Corporation & plc (NYSE:CCL)’s higher valuations continue to pose a critical risk. The stock currently trades at ~10.02x its forward earnings, which is higher as compared to the sectoral average of ~7.75x. Moreover, the bears believe that if the interest rate cuts don’t happen as anticipated in 2024, it will be a tough environment for this travel stock, which has high debt levels. Carnival Corporation & plc (NYSE:CCL) has over $27 billion in long-term debt. Therefore, higher interest expenses can weigh over the company’s bottom line in the upcoming quarters of 2024.
However, Wall Street analysts opine that Carnival Corporation & plc (NYSE:CCL) is well-placed for a revival. They believe that demand for cruises is expected to remain strong, with the company’s key performance indicators demonstrating that it should be able to capitalize on this untapped demand.
The repositioning and deployment of cruises to faster-growing and underrepresented regions such as Asia-Pacific continue to provide balance in high-capacity regions such as the Caribbean and Mediterranean before COVID-19. This factor can again be utilized to help optimize forward pricing. Considering the European demand and occupancy profile which continues to converge on normalized levels, Carnival Corporation & plc (NYSE:CCL) should see improved economic performance. Moreover, it is expected to benefit from a strong market presence. Leveraging this competitive advantage should allow the company to position its strategic sales and differentiation in the industry.
Analysts at Bank of America upped their target price on shares of Carnival Corporation & plc (NYSE:CCL) from $23.00 to $24.00, giving it a “Buy” rating on 27th June. As per Insider Monkey’s database, 53 hedge funds held stakes in the company.
Overall, CCL ranks 2nd on our list of 10 worst cruise stocks according to short sellers. While we acknowledge the potential of CCL as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than the ones mentioned on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
