Carnival (NYSE: CCL) is watching shares fall today after projecting a loss for the coming year. The company has experienced several setbacks due to Covid-19 surges. This time, however, the rising cost of fuel spurred by the Russia-Ukraine conflict has Wall Street worried about CCL stock.
What’s Happening With CCL Stock
Today brought reports that the cruise line is projecting a loss for 2022. It didn’t take long for CCL stock to start sinking. As of this writing, it is down almost 1.7% for the day and there’s no rebound in sight. The company was already facing constraints caused by the conflict in Ukraine as it pivoted routes to avoid Russian ports. Now rising fuel costs threaten to derail the company’s plans to start its recovery from the Covid-19 pandemic.
Let’s take a closer look at the multiple factors pushing CCL stock down.
Why It Matters
When a company projects a loss for the year, shares will often fall. This does not always mean that the stock will stay in the red for the year. However, in the case of Carnival, there is little cause for optimism. A few weeks ago, it was a different story. Covid-19 cases were declining after the omicron variant surge, and Americans were getting excited about travel again.
Since fuel prices began to rise, though, all components of the transportation sector have been compromised, with the exception of those that operate electronically. Analysts who initially did not expect to see fuel prices rise by too much are now adjusting their predictions. Jefferies has estimated that they will be 8%-10% higher than previously expected in the year’s first half and 10%-11% higher in the second. That certainly doesn’t bode well for cruise lines.
Fuel costs aren’t the only reason for a bearish case on CCL stock. InvestorPlace contributor Ian Bezek recently examined the company’s financials. His conclusion was that the stock is overvalued when weighed against the company’s prospects. He also noted that the company’s issuing of 400 million shares during the pandemic left it with many outstanding shares and shareholders with diluted holdings. Bezek predicted that these balance sheet problems would compel investors to jump ship in the weeks ahead.
It should also be noted that even if travel excitement does resume, cruise lines are less essential than airlines. For that reason, it is unlikely that CCL stock and its peers will rise simply because airline stocks have been. Americans may be flying again, but consumers fly for many reasons. They book cruises for vacation purposes only.
What It Means
As of now, CCL stock is surrounded by uncertainty. On the surface, the company is facing prominent external factors. Below the surface, it boasts troubling financials that don’t do much to inspire confidence in investors. Even if demand for cruises rises this summer, cruise lines will likely raise prices to combat mounting fuel costs. These spikes may compel some consumers to seek other means of vacation travel.
Both the market and industry landscapes look bleak for CCL stock right now. The cruise line sector is currently facing dark storm clouds, and investors would do well to avoid it.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
