4 Cruise Stocks That Could Fund Your Next Vacation

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Carnival Corporation (CCL) delivered Q3 earnings Tuesday before the markets opened. The results were far better than analyst expected, but investors barely reacted to the good news. CCL stock is up just 78 cents in two days’ trading since releasing its results.

CruiseShip185Carnival’s business is completely on the mend, and profits are up. The question, though, is whether this is the time to get on board CCL stock or whether there’s a better option available on the high seas? After all, there are plenty of other cruise stocks out there, including Royal Caribbean (RCL), Norwegian Cruise Lines (NCLH) and Steiner Leisure (STNR).

Taking a look at all the cruise-related publicly traded companies, I’ll tell you whether CCL stock or any of its peers are worth betting on given the current valuations of both cruise stocks and the markets in general.

Carnival Corporation (CCL)

Carnival Corp. NYSE:CCLAnalysts were expecting earnings per share of $1.43 from Carnival Corporation (CCL), while management projected one penny higher at $1.44. But Carnival earnings actually came in at $1.58 — 15 cents higher than expected. Any time you can beat expectations by 10% or more in an industry as large and predictable as the cruise business, you’re doing a lot of things right.

A number of good things happened in Q3, including a 15% year-over-year increase in earnings, a 20% increase in the number of guests traveling on Caribbean cruises this past summer, a 3.5% decline in fuel prices (fuel is a bigger expense than payroll) and a 10% increase in onboard spending.

That final statistic is especially compelling because onboard revenues are almost pure profit. In Q3, Carnival’s net onboard revenues were $919 million or 23% of overall cruise revenues. More importantly, its net onboard and other revenue yield was $46.74 per available lower berth day — 6.6% higher year-over-year. This essentially means that the average passenger spent almost $3 more per day than a year ago. It might not seem like a lot, but multiplied against almost 365 sailing days and it adds up fast.

As a result of all the good news, Carnival upped its full-year 2014 guidance for its non-GAAP diluted earnings to a minimum of $1.84 per share — nine cents higher than its most optimistic guidance this past June. With CCL stock up just 2% year-to-date and 6.2% over the past five years, it’s due for a breakout.

Royal Carribean (RCL)

RoyalCaribbean185If stock performance is the sole arbiter, however, Royal Caribbean (RCL) is the clear winner in recent years when compared to CCL stock. RCL is up 40% YTD, sitting within striking distance of its all-time high of $69.31.

How good is Royal Caribbean?

RCL has beaten CCL stock in six out of the last 10 years. During the past decade, RCL has achieved an annualized total return of 5.3% — 443 basis points higher than CCL. Royal Caribbean’s highs have been spectacular — its annual total return was greater than 35% in 2004, 2009, 2010, 2012 and 2013. And it looks like RCL could do it again in 2014.

That’s something special, but in its two big down years — 2008 and 2011 — it averaged a decline of 57% — 39 percentage points worse than the S&P 500. Meanwhile, CCL stock averaged a decline of 35% — 22 percentage points less than RCL.

If you don’t like volatility, you might want to think twice about RCL.

Norwegian Cruise Lines (NCLH)

Norwegian185Another possibility is Norwegian Cruise Lines (NCLH), which went public in January 2013 at $19 per share. Gaining 31% in its first day of trading, it has only gained 47.4% in the 20 months since then. That’s not great in a market like the one we’ve experienced the past two years.

Does it have the stuff to come out of its slumber? If two recent pieces of news pan out for NCLH, it very well might.

The first is its August announcement that it was introducing all-inclusive pricing (August only) on all of its cruises except those to Hawaii and Europe. All-inclusive travel has gotten better over the years, and cruising is the perfect venue for this type of pricing schedule. The company anticipates that 20% of its bookings in August will opt for the all-inclusive package. It’s just one more way to put heads in beds as they say in the hotel business.

The second piece of news is its $3 billion acquisition of Prestige Cruises International, owners of Oceania Cruises and Regent Seven Seas Cruises, two of the industry’s most luxurious cruise lines. The synergies, partnerships, cross-selling opportunities make the purchase an easy choice. With three all-suite cruise lines, NCLH is now better able to compete with its bigger peers.

Steiner Leisure (STNR)

Steiner Leisure NASDAQ:STNRLastly, if you’re looking for a wildcard in the cruise business, Steiner Leisure (STNR) could be just the ticket. Down 33% over the past 52 weeks, STNR stock really hasn’t done much since 2010. That doesn’t mean it doesn’t have the moxie to rise from the ashes of the scrap heap. At the stock market lows in March 2009 it was trading at less than $20. By October 2013 it was trading above $60.

STNR stock can hit those highs once more in two ways: First, by stabilizing its spa operations, which saw a 13% decline in revenue in Q2 thanks to the loss of its contract with Celebrity Cruise Lines, a division of RCL, and secondly by consistently generating a profit from its laser hair removal business, which didn’t even exist three years ago until it paid $175 million for Tampa-based Ideal Image, a nationwide network of 68 treatment centers across 21 states. Adding a bunch of new services since then, STNR is a diamond in the rough that always recovers.

Bottom Line

If I could only buy one stock, I’d have to go with RCL.That’s because, in terms of price-to-sales, it’s still cheaper than CCL stock or NCLH despite its big run over the past couple of years. If I could buy two, I’d also have to go with STNR because it’s really cheap at the moment.

Sorry, Carnival, but there’s no room in the life boat for CCL stock.

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/ccl-stock-cruise-stocks/.

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