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Norwegian (NCLH) or Royal Caribbean (RCL): Which is a Better Stock?

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Zacks Equity Research
·6 min read
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The cruise industry has been driven to a standstill by the coronavirus-induced crisis. Markedly, the pandemic-induced travel warnings and cruise cancellations have started taking a toll on the respective companies. Notably, companies are witnessing a rise in costs associated with the suspension of cruise voyages, continued payment of protected commissions and crew salaries. Also, older vessels are being disposed by companies to induce sustainability.

However, with increased focus on cost efficiencies (resulting from the exit of less efficient ships), streamlining of shoreside operations, vaccine distribution and CDC protocols, the industry is likely to gain traction in the upcoming days.

Notably, companies are witnessing pent-up demand with the phased resumption of operations. Moreover, positive customer feedback is being registered on the implementation of operational measures covering all aspects of on-board and ashore experiences. The initiatives include limited capacity, swab tests, temperature checks when disembarking and re-embarking the ship, protected shore excursions, physical distancing measures, enhanced sanitation and medical services as well as use of protective face masks. Moreover, talks with national and local authorities of several countries are underway to define further details on the resumption of operations.

However, risks arising from the resurgence in Covid-19 cases, cannot be ruled out. Furthermore, chances of voyage suspension and delay in new ship deliveries are likely, due to the same.

Despite the roadblocks, it is worth noting that the Zacks Leisure and Recreation Services industry has had a decent run on the bourses in the past six-months. The industry has gained 40% in the said time frame compared with the S&P 500’s 18.2% growth.

Leading cruise companies like Norwegian Cruise Line Holdings Ltd. NCLH and Royal Caribbean Group RCL have been adopting and deploying strategies to generate profits.

Let’s analyze and find out which firm among Norwegian Cruise and Royal Caribbean, both carrying a Zacks Rank #3 (Hold) at present, is better positioned right now.

Price Performance

Norwegian Cruise stock has gained 68.9% in the past six-month period, while Royal Caribbean’s shares have rallied 28.7%.



Shares of Norwegian Cruise are benefitting from solid demand for future cruise vacations. Although the company’s overall cumulative booked position for second-half 2021 is below historical levels, its pricing for the said period is in line with the pre-pandemic level. This along with increased focus on fleet-expansion efforts are enabling the company to gain traction.

Earnings History and Projected Growth

Norwegian Cruise’s earnings missed the Zacks Consensus Estimate in each of the trailing four quarters, with a negative earnings surprise of 30.8%, on average. Meanwhile, Royal Caribbean has missed estimates in three of the trailing four quarters and posted a beat once. It has a trailing four-quarter negative earnings surprise of 31.7%, on average.

Norwegian Cruise earnings for 2021 are expected to grow 30.2%, while Royal Caribbean’s earnings for the same period are anticipated to surge 27.4%.

Fundamentals

Norwegian Cruise recently outlined its phased cruise resumption plan. The company is planning to resume cruise operations for voyages boarding outside of the United States with sailings originating in Jamaica, Dominican Republic and Greece starting in July 2021 with Norwegian Joy, Jade and Gem. On Apr 5, 2021, Norwegian Cruise outlined a plan to resume operations from the U.S. ports in July and sent it to the U.S. Centers for Disease Control and Prevention (“CDC”) for approval.

Norwegian Cruise is constantly looking to expand fleet size. It plans to introduce nine more ships through 2027. For the Regent brand, it has one Explorer Class Ship to be delivered in 2023. For the Oceania Cruises brand, the company has two Allura Class Ships to be delivered in 2023 and 2025. With the project Leonardo, Norwegian Cruise will have an additional six ships with expected delivery dates from 2022 through 2027.

Despite reduced sales and marketing investments, bookings have been strong, resulting in a prolonged booking window with guests booking further into the future. Notably, the company has been registering solid demand for future cruise vacations. Although the company’s overall cumulative booked position for second-half 2021 remains below historical levels, its pricing for the said period is in line with the pre-pandemic level (even after including the dilutive impact of future cruise credits).

Coming to Royal Caribbean, the company continues to make use of digital tools for marketing, product development and to enhance the consumer experience. These include revamped websites, new vacation packaging capabilities, support for mobile apps and increased bandwidth onboard to help guests remain well-connected at sea. With busier customers preferring more digital devices that help save time, introduction of superior Internet bandwidth, online check-in accompanied with radio-frequency identification technology likely to continue increasing occupancy.

Meanwhile, the company resumed operations in limited capacity and started receiving positive reviews by customers sailing with the company. Going forward, the initiative is likely to boost its image with regard to operations under the COVID-19 environment. Furthermore, it expects to re-start its global cruise operation in a phased manner with initial cruises having reduced guest occupancy, modified itineraries as well as enhanced health and safety protocols. The company has stared operations in Singapore, Germany and Canary Islands, Greece and the Middle East.

Our Take

Our comparative analysis shows that Norwegian has an edge over Royal Caribbean in terms of share price appreciation and projected EPS growth rate. However, the fundamentals of both companies look solid. Taking all the factors into account, we believe that Norwegian Cruise is slightly better positioned than Royal Caribbean at the moment.

Key Picks

Some better-ranked stocks in the same space include Camping World Holdings, Inc. CWH, RCI Hospitality Holdings, Inc. RICK and Target Hospitality Corp. TH. Camping World sports a Zacks Rank #1 (Strong Buy), while RCI Hospitality and Target Hospitality carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Camping World has three-five-year earnings per share growth rate of 34.7%.

RCI Hospitality has a trailing four-quarter earnings surprise of 387%, on average.

Target Hospitality’s 2021 earnings are expected to surge 62.1%.

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Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report

Camping World Holdings Inc. (CWH) : Free Stock Analysis Report

RCI Hospitality Holdings, Inc. (RICK) : Free Stock Analysis Report

Norwegian Cruise Line Holdings Ltd. (NCLH) : Free Stock Analysis Report

Target Hospitality Corp. (TH) : Free Stock Analysis Report

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