Carnival vs. Norwegian: Which Cruise Line Stock is a Better Buy?

According to Statista, the global revenue in the cruises segment is expected to reach $36,083.58 million, growing at a CAGR of 38.41% between 2021 and 2026. This growth is projected to be fueled by the increasing cruise onboard facilities and services and higher disposable income.

The industry has recently witnessed a massive sell-off amid concerns regarding the omicron variant of the COVID-19. However, the recent data revealed that the Omicron variant might not cause severe illness and deaths in vaccinated people, initiating a minor recovery in the cruise line sector. 

In this article, I am going to analyze and compare two cruise line stocks: Carnival Corporation (CCL) and Norwegian Cruise Line Holdings (NCLH). Founded in 1972, CCL is a leisure travel company that operates in North America, the Caribbean, Australia, Asia, and Europe. The company has a fleet of 87 ships, visiting over 700 ports across the globe. Headquartered in Miami, Florida, NCLH also provides cruise tourism services in North America, Europe, the Asia-Pacific, and worldwide.

Recent Developments

On November 16th, Norwegian Cruise Line priced a stock offering of about 46.86 million of its ordinary shares to some holders of NCL Corporation's, 6.00% Exchangeable Senior Notes, maturing in 2024, at $23.64 per share. The company plans to use net proceeds to buy out some of its Senior Secured Notes and for general corporate purposes. In addition, CCL has also priced $1 billion of 1.125% exchangeable senior notes, which matures in 2027.

Recent Quarterly Performance & Analysts Estimates 

On September 24th, Carnival Corporation reported earnings for the third quarter of 2021. The company’s total revenue has risen 1643% year-over-year to $546 million, missing, however, Wall Street's estimates by $248.84 million. This tremendous growth rate was achieved due to the full pause of its guest cruise operations during the third quarter of 2020. 

The company’s adjusted net loss stood 17% higher YoY at $1.99 billion, leading to adjusted EPS of ($1.75) compared to its year-ago figure of ($2.19). In addition, the company utilized about 59% of its fleet in Q3, demonstrating a positive cash flow from voyages. 

The company ended the quarter with a strong liquidity position of $7.8 billion, with an approximate monthly cash burn rate of $510 million. Finally, it experienced a high early demand for 2023 cruises. 

When it comes to the next quarter, analysts see CCL’s EPS at ($1.28), implying a 28.98% increase compared to the 4Q2020 figure. Also, a $1.55 billion average revenue estimate for the fourth quarter of 2021 indicates further growth on a year-over-year basis. 

Norwegian Cruise Line Holdings' total revenue for its fiscal third quarter, ended September 30th, 2021, has risen 2,247.9% year-over-year to $153.08 million. However, NCLH missed the Wall Street consensus revenue projections by $19.22 million. The cruise operator reported a Non-GAAP EPS of ($2.17), missing Wall Street estimates by $0.17.

The company plans to operate 75% of its capacity by the year-end of 2021, backing its entire fleet in operation by April 2022. It also expects to report profits in the second half of 2022.  

Currently, Wall Street expects NCLH's earnings to grow by 30.72% in the fourth quarter of 2021 to ($1.61) per share. Also, its top line should advance 6,011.90% to $585.46 million in Q4.

Comparing Valuations 

In terms of Forward EV/Sales, NCLH is presently trading at 27.07x, which is 29% higher than CCL, whose multiple is currently coming in at 20.97x. However, both companies look expensive compared to the sector's median of 1.44x.

When it comes to the TTM P/B multiple, NCLH's P/B multiple of 2.72x is also higher than CCL's 1.55x. Based on this multiple, both companies are currently discounted compared to the sector’s median of 3.57x. However, CCL looks relatively cheaper. 

Bearish Options Trades Placed On NCLH  

The open interest levels for December 23rd $20.00 puts increased on Friday. According to barchart.com, the open contracts rose by 3,947 contracts to about 4,191. For the buyer of the $20.00 puts to earn a profit, the stock would need to plunge to around $19.65, implying approximately a 3.3% downside from NCLH's current price.

The Bottom Line

The cruise tourism industry is expected to continue its recovery from the impacts of the COVID-19 crisis. While both CCL and NCLH are expected to benefit, CCL looks more attractive at current levels because of its superior financials, lower valuation, and better growth prospects. Finally, NCLH's bearish options market sentiment could create a short-term downside pressure.

CCL shares were trading at $17.40 per share on Wednesday morning, down $0.75 (-4.13%). Year-to-date, CCL has declined -19.67%, versus a 24.81% rise in the benchmark S&P 500 index during the same period.

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.

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