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4 Cruise Stocks to Buy to Benefit From Pent-Up Leisure Travel Demand

cruise stocks - 4 Cruise Stocks to Buy to Benefit From Pent-Up Leisure Travel Demand

Source: Shutterstock.com

Even with the headwinds related to the pandemic, cruise stocks have trended higher in the last 12-months. A key reason is a positive outlook for 2022 and beyond. Further, most cruise companies have strengthened their balance sheet to navigate an extended period of cash burn.

It’s worth noting that the cruise industry revenue plunged to $3.3 billion in 2020. The industry is expected to generate revenue of $6.6 billion for the current year. This is still significantly below 2019 revenue of $27.4 billion.

However, the outlook for 2022 is bright with several cruising companies reporting strong bookings. Another point worth noting is that the cruise industry carried 27.8 million passengers in 2019. In the next year, the industry is likely to have a capacity of 31.7 million passengers. The total capacity is expected to increase to 38.7 million passengers by 2027.

Clearly, the industry is focused on recovery and gradual fleet expansion. Let’s talk about four cruise stocks that look positioned for upside in the next few quarters as more cruise ships are on water.

  • Norwegian Cruise (NYSE:NCLH)
  • Carnival Corporation (NYSE:CCL)
  • Lindblad Expeditions (NASDAQ:LIND)
  • Royal Caribbean (NYSE:RCL)

Cruise Stocks to Buy: Norwegian Cruise (NCLH)

Norwegian Pearl, a Norwegian Cruise Line (NCLH) ship, in the middle of the ocean

Source: Vytautas Kielaitis/shutterstock.com

After touching highs of $34.5, NCLH stock has corrected to current levels of $24. This seems like a good opportunity for fresh accumulation.

On July 26, Norwegian Jade initiated a return to cruise after 500 days. Norwegian Cruise requires all guests and crew to be vaccinated. As more vessels return for cruise in the coming quarters, the stock is likely to trend higher. Norwegian Cruise is already working with the Centers for Disease Control and Prevention for cruise resumption in the U.S.

It’s also worth noting that the company’s booking position for the first half of 2022 is ahead of 2019 levels. If the delta variant is curbed, Norwegian Cruise is positioned for a strong comeback.

From a financial perspective, the company reported cash and equivalents of $3.5 billion as of March 2021. This provides the company headroom to navigate the next few quarters of cash burn.

The company has $12.2 billion in debt. However, I don’t see that as a concern with an extended debt maturity profile. Overall, NCLH stock looks attractive for further upside in the next 12-24 months.

Carnival Corporation (CCL)

CCL stock cruise stocks docked cruise ships

Source: Kokoulina / Shutterstock.com

CCL stock is another name among cruise stocks that looks attractive after a correction. In June 2021, the stock had touched highs of $31.5. A correction was imminent after a decent rally and the stock currently trades at $21.7.

For Q2 2021, Carnival reported cash and equivalents of $9.3 billion. This provides the company with sufficient liquidity to return to full cruise.

It’s worth noting that the company plans to operate up to 75% of the fleet capacity by the end of the year. This is likely to ensure that the company’s cash burn declines meaningfully in the next few quarters.

In terms of revenue visibility, the company reported 45% growth in booking volume in Q2 2021 on a quarter-on-quarter basis. Further, cumulative bookings for 2022 are ahead of 2019 levels. This positions the company for a strong recovery.

Looking at the risks, Carnival Corporation reported total debt of $30.7 billion for Q2 2021. High debt would imply significant debt servicing cost even when the fleet is fully operational. Over the next few years, Carnival would need to significantly deleverage.

However, sustained recovery for the industry would take CCL stock higher. Prior to the Covid-19 crisis, the company was generating healthy cash flows. Once operations are back to those levels, deleveraging is likely to be swift.

Cruise Stocks to Buy: Lindblad Expeditions (LIND)

penguins in antarctica

Source: Shutterstock.com

LIND stock is another attractive name among cruise stocks. The small-cap stock looks positioned for a renewed rally after some correction in the recent past.

Currently, the company has ten owned expedition ships and five seasonal charter vessels. Additionally, the company is also focused on land-based travel through its subsidiaries. LIND stock, therefore, provides investors with a more diversified exposure to the travel and tourism industry.

Lindblad Expeditions is positioned to navigate the crisis with a relatively healthy balance sheet. As of Q1 2021, the company reported cash and equivalents of $163.9 million. The company has already received waiver of leverage covenants through Q1 2022. As the company commences fleet operations, adjusted EBITDA is likely to improve.

It’s worth noting that Lindblad Expeditions has reported healthy 2022 bookings. As of Q1 2021, the company’s bookings were 39% higher as compared to 2021.

Craig-Hallum’s analyst Alex Fuhrman believes that “Lindblad is poised for more than $100M in EBITDA after the reopening.” The analyst has a price target of $17 for the stock. This would imply an upside potential of 30% from current levels of $13.03.

Royal Caribbean (RCL)

Deck of a Royal Caribbean (RCL) cruise ship looking over the ocean

Source: Venturelli Luca / Shutterstock.com

It was recently reported that six Royal Caribbean guests tested positive for Covid-19. This resulted in some correction in the stock. However, RCL stock is also among the cruise stocks that’s worth adding in on declines.

From the perspective of resumption of cruising, the progress has been positive for the company. In the last eight weeks, a total of eight cruise ships have commenced operations. This includes the company’s return of cruise operations from the United States.

In terms of financial strength, I see the following two positives. First and foremost, the company reported liquidity of $5.8 billion as of March 2021. This provides cash buffer to sustain through the cash burn. Furthermore, a majority of commercial bank facilities have waived debt covenants through Q3 2022.

As more cruise ships are operational in the next few quarters, the company is unlikely to require further equity dilution. Of course, debt servicing cost is likely to remain high in the next few years. That will not be a big risk if the capacity utilization reaches pre-covid levels.

Overall, RCL stock has declined by 22% from recent highs to current levels of $76.90. This correction is a good opportunity to accumulate the stock. Once more cruise ships are operational and cash burn declines, a renewed rally seems likely.

On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

Article printed from InvestorPlace Media, https://investorplace.com/2021/08/4-cruise-stocks-to-buy-to-benefit-from-pent-up-leisure-travel-demand/.

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