What’s Good for Royal Caribbean and NCL Is Great for Carnival Stock

Two of the three largest cruise line operators have posted quarterly results over the past week. Don’t expect to hear from Carnival Corp. (NYSE: CCL) anytime soon. The market leader operates on a different fiscal year that ends in November. Carnival’s next earnings call won’t take place until late June.

It’s still important for Carnival shareholders to check on how its rivals are faring. Royal Caribbean‘s (NYSE: RCL) blowout performance last week and Norwegian Cruise Line‘s (NYSE: NCLH) strong showing this Wednesday morning reaffirm the improving state of the industry. With cruise line stocks merely drifting along in 2024 after trouncing the market last year, it could be a great time to come aboard.

The water’s fine

Norwegian Cruise Line saw its revenue rise 20% to $2.19 billion through the first three months of this year. An 8% increase in its fleet capacity, along with the more encouraging trends of increased occupancy levels and an 8% jump in total revenue per passenger cruise day, helped lift the top line above its pre-pandemic showings. Analysts were actually holding out for a 23% increase in revenue, but the news gets better on the bottom line.

The third-largest cruise line operator reversed a year-ago deficit to post an adjusted profit of $0.16 a share in the first quarter. Norwegian was only eyeing net income of $0.12 a share. With improving margins and its forward-booked position at an all-time high, it became the latest player in the cruising market to boost its guidance.

Norwegian now sees a profit of $1.32 a share for all of 2024, up from its previous goal of $1.23 a share. Nearly half of that boost resulted from its first-quarter beat, but it obviously sees stronger-than-expected earnings growth for the balance of this year, too.

Norwegian shares opened slightly lower on Wednesday as a result of the top-line miss, but that wasn’t the case with larger peer Royal Caribbean last week. The world’s second-largest cruise line saw its first-quarter revenue soar 29%, comfortably ahead of Wall Street’s crow’s nest. Royal Caribbean also blew profit targets out of the water and has jacked up its full-year profit outlook twice in the last three months.

Image source: Getty Images.

Here’s the opportunity

The first quarter wasn’t perfect for the industry, outside of Royal Caribbean’s blowout showing. Carnival joins Norwegian in falling short on revenue growth in its fiscal first quarter, announced in late March. All three players still grew their total revenue by at least 20%, obliterating expectations on the earnings front.

The future is bright. All three players also closed out their latest quarters with record booking levels and customer deposits. The allure of ocean getaways has never been stronger. The initial pandemic-related stoppage only heightened demand once the health concerns were resolved.

Investing in cruise line stocks was a great call in 2023. Shares of Carnival and Royal Caribbean more than doubled. Norwegian — historically the laggard of the lot — was up only 64%, but that was obviously more than enough to beat the market.

Momentum on the trading floor has been lost at sea in 2024. Carnival is down 20% through the first four months of the year. Norwegian is now down in a double-digit percentage hole. Royal Caribbean is the only one treading above water, with the stock rising 8% through the end of April. But even that move up fails to reflect the dramatic revisions higher of its near-term prospects.

Carnival, Royal Caribbean, and Norwegian are all trading at forward earnings multiples in the low teens. They are using their newfound wealth to pay down debt and repurchase shares. Investors feeling they might have missed the boat in last year’s rally may want to see whether the ships have returned this year to get them. There is still time to go cruising.

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Rick Munarriz has positions in Norwegian Cruise Line and Royal Caribbean Cruises. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.