The U.S. cruise industry is experiencing a surge in popularity as shares of major cruise lines like Royal Caribbean Cruises Ltd. (RCL), Norwegian Cruise Line Holdings Ltd. (NCLH), and Carnival Corp. (CCL) are among the top performers in the S&P 500 for October. Investors are closely watching the upcoming earnings reports from Royal Caribbean and Norwegian this week, eager to see if the strong booking trends and impressive earnings beats can fuel continued growth in the sector.
Cruise Stocks Shine in October
Cruise line stocks have soared this month, fueled by upward earnings revisions and a renewed sense of optimism surrounding travel demand. Royal Caribbean and Norwegian shares have climbed 14.5% and 16.3% respectively month-to-date, while Carnival has experienced an even more impressive rise of 18.6%. Royal Caribbean is scheduled to report its third-quarter earnings on October 29 before the market opens, followed by Norwegian on October 31, also ahead of the market open.
Wall Street Anticipates Solid Growth
Wall Street analysts are expecting significant growth for both Royal Caribbean and Norwegian Cruise Line in the third quarter of 2024. Royal Caribbean is projected to report adjusted earnings per share (EPS) of $5.03 on revenue of $4.11 billion. This would represent a substantial 31% increase in EPS and 18% revenue growth compared to the same period in 2023, according to Benzinga Pro data. Norwegian Cruise Line is anticipated to report adjusted EPS of 94 cents and revenue of $2.77 billion, indicating a 24% EPS growth and 9% revenue increase year-over-year.
Cautious Optimism from Bank of America
While analysts are optimistic about the cruise sector’s performance, Bank of America analyst Andrew Didora has expressed some caution. He acknowledges the strong booking trends reported by Carnival in September and anticipates similar positive commentary from Royal Caribbean and Norwegian for 2025. This optimism has led Didora to raise his 12-month price targets for Royal Caribbean and Norwegian, but he maintains a “Neutral” rating on both stocks. He believes that while the current momentum is positive, valuations are reaching stretched levels.
Royal Caribbean is currently trading at nearly 12x its projected 2025 EBITDA, a level not seen since 2017. Norwegian is trading at around 9.5x its 2025 EBITDA, which is in line with its historical average. Didora also highlights some minor headwinds that could impact near-term guidance. Hurricane Milton, which forced the cancellation of Royal Caribbean’s Icon of the Seas sailing, may slightly affect fourth-quarter revenues. However, the impact is expected to be minimal for Norwegian as only about 8% of its Q4 capacity is deployed in the Caribbean.
Share Buyback Speculation Adds Interest
Adding another layer of interest for investors is the speculation surrounding potential share buybacks. Royal Caribbean, in particular, may be considering a buyback as part of its capital allocation strategy. Bank of America has slightly raised its 2024 EPS estimate for Royal Caribbean from $11.52 to $11.58, suggesting that this “could pave the way for a buyback on this earnings call.”
The cruise industry’s current momentum is undeniable, but investors will be closely watching the upcoming earnings reports to gauge the sustainability of this positive trajectory and assess whether the potential for share buybacks will translate into tangible action.
