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RCL, CCL, and NCLH: April Buy, Hold or Sell?

The travel industry is witnessing unprecedented demand due to evolving consumer preferences, business travelers, and rising disposable incomes. Thus, let’s analyze whether one should Buy, Hold, or Sell cruise stocks Norwegian Cruise Line (NCLH), Royal Caribbean Cruises (RCL), and Carnival (CCL)...

The travel and tourism industry is booming thanks to a rise in young travelers, greater interest in experiences, and the return of business travel. Recent travel trends show that guests now prefer trips that mix work with exploration, relaxation, and discovery. Additionally, travel companies are adopting digital solutions to meet evolving consumer needs and sustainability goals helping boost the industry's growth prospects.

Despite the promising outlook, not all travel stocks are well-positioned to benefit. Therefore, investors could look to avoid Norwegian Cruise Line Holdings Ltd. (NCLH), given its poor fundamentals and weak growth prospects. On the other hand, waiting for an opportune entry point in Royal Caribbean Cruises Ltd. (RCL) and Carnival Corporation & plc (CCL) could be prudent.

The cruise industry was one of the worst affected by the pandemic. However, it has made a roaring comeback fueled by pent-up demand. Bookings have been robust, along with improvements in occupancy. Demand has been so strong that companies are looking to add capacity.

Cruise Lines International Association (CLIA) predicts 35.7 million passengers will cruise in 2024. Also, member cruise lines will see a 7.5% passenger increase this year. The global cruise market is expected to grow at a 5.1% CAGR, reaching $36.67 billion by 2028.

However, these companies are still laden with massive debt, which they had undertaken during the pandemic to stay afloat. The high debt levels have meant that cruise lines slowed capital expenditures, delayed overhaul projects, and deferred new construction. Cruise companies are tackling challenges like over-tourism, with destinations around the world limiting or outright banning them from ports.

Moreover, the recent collapse of the Francis Scott Key Bridge in Baltimore will hit cruise lines' net incomes as cruises will be forced to divert to other ports along the U.S. East Coast. Meanwhile, growing sustainability concerns are likely to force cruise lines to get rid of older ships and order new ones.

Let’s examine the fundamentals of the three Travel – Cruises stocks, beginning with the less favorable one from an investment point of view.

Stock to Sell:

Stock #3: Norwegian Cruise Line Holdings Ltd. (NCLH)

NCLH and its subsidiaries operate as a cruise company in North America, Europe, the Asia-Pacific, and internationally. The company manages the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands.

In terms of the trailing-12-month asset turnover ratio, NCLH’s 0.45x is 55.1% lower than the 1x industry average. Its 36.04% trailing-12-month gross profit margin is marginally lower than the 36.18% industry average. Likewise, the stock’s 1.94% trailing-12-month net income margin is 58.2% lower than the 4.65% industry average.

NCLH’s revenues for the fiscal fourth quarter ended December 31, 2023, came in at $1.99 billion. The company’s adjusted net loss and adjusted loss per share narrowed 82.5% and 82.7% to $77.12 million and $0.18, respectively.  In addition, as of December 31, 2023, its cash and cash equivalents came in at $402.42 million, compared to $946.99 million as of December 31, 2022.

Over the past nine months, NCLH’s stock has declined 13.2% to close the last trading session at $18.02.

NCLH’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It is ranked last out of four stocks in the Travel - Cruises industry. It has an F grade for Sentiment and a D for Stability and Quality. Click here to see NCLH’s Growth, Value, and Momentum ratings.

Stocks to Watch:

Stock #2: Carnival Corporation & plc (CCL)

CCL engages in the provision of leisure travel services internationally. The company operates through four segments: NAA Cruise Operations, Europe Cruise Operations, Cruise Support, and Tour and Other.

In terms of the trailing-12-month gross profit margin, CCL’s 50.52% is 39.6% higher than the 36.18% industry average. Its 19.26% trailing-12-month Capex / Sales is 533.2% higher than the 3.04% industry average. However, the stock’s 3.67% trailing-12-month Return on Total Capital is 39.9% lower than the 6.11% industry average.

For the fiscal first quarter, which ended on February 29, 2024, CCL's revenues increased 22% year-over-year to $5.41 billion. The company's operating income stood at $276 million, compared to an operating loss of $172 million in the year-ago quarter. However, its adjusted net loss and adjusted loss per share narrowed 73.9% and 74.5% over the prior-year quarter to $180 million and $0.14, respectively.

For the quarter ending May 31, 2024, CCL’s revenue is expected to increase 15.2% year-over-year to $5.66 billion. Its EPS for the same quarter is expected to remain negative. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 44.8% to close the last trading session at $14.12.

CCL’s uncertain outlook justifies its overall rating of C, which translates to Neutral in our proprietary POWR Ratings system.

It has a C grade for Momentum, Sentiment, and Quality. It is ranked #2 in the same industry. In total, we rate CCL on eight different levels. Beyond what we have stated above, we also have given CCL grades for Growth, Value, and Stability. Get all the CCL ratings here.

Stock #1: Royal Caribbean Group (RCL)

RCL operates as a cruise company worldwide. The company operates cruises under the Royal Caribbean International, Celebrity Cruises, and Silversea Cruises brands, which comprise a range of itineraries.

On March 22, 2024, RCL announced the addition of Royal Beach Club Cozumel in Mexico to its destination lineup and is scheduled to open in 2026 and offers a variety of beach experiences, dining spots, and activities like tequila tastings and cooking classes, aiming to provide the ultimate vacation experience for all types of travelers.

In terms of the trailing-12-month EBITDA margin, RCL’s 31.29% is 183.3% higher than the 11.04% industry average. Its 44.70% trailing-12-month Return on Common Equity is 297.8% higher than the 11.24% industry average. On the other hand, the stock’s 0.40x trailing-12-month asset turnover ratio is 59.7% lower than the 1x industry average.

For the fiscal fourth quarter that ended on December 31, 2023, RCL’s total revenues increased by 27.9% year-over-year to $3.33 billion, while its operating income rose considerably to $570 million. The company reported adjusted EBITDA of $1 billion, up 145% over the prior-year quarter.

For the same quarter, its adjusted net income attributable to RCL and adjusted earnings per share stood at $331 million and $1.25, respectively, compared to an adjusted net loss and adjusted loss per share of $285 million and $1.12.

Street expects RCL’s revenue for the quarter ended March 31, 2024, to increase 27.7% to $3.68 billion. Its EPS for the quarter ended June 30, 2024, is expected to increase 30.4% year-over-year to $2.37. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past month, the stock has declined marginally to close the last trading session at $127.97.

RCL’s POWR Ratings reflect an uncertain outlook. It has an overall rating of C, which translates to a Neutral in our proprietary rating system.

It is ranked first in the Travel - Cruises industry. It has a C grade for Value, Momentum, Sentiment, and Quality. Click here to see RCL’s Growth and Stability ratings.

What To Do Next?

Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:

10 Stocks to SELL NOW! >

RCL shares were trading at $128.42 per share on Thursday afternoon, up $0.45 (+0.35%). Year-to-date, RCL has declined -0.83%, versus a 5.38% rise in the benchmark S&P 500 index during the same period.

About the Author: Abhishek Bhuyan

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.


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