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Abhishek Bhuyan

Carnival (CCL) and Royal Caribbean (RCL) - a Deep Dive Into Upside Potential

The cruise travel industry thrives on the demand for unique experiences, rising disposable income and rapid adoption of technology. For reasons discussed throughout this article, I think it could be worth watching travel stocks Carnival Corporation & plc (CCL) and Royal Caribbean Cruises Ltd. (RCL) for opportunities to capitalize on the positive industry trends.

Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the industry.

Cruise ticket prices are increasing due to heightened post-pandemic demand. This surge hurts consumers as prices exceed pre-pandemic levels. It potentially indicates a sustained trend with additional increases, rendering cruises less affordable.

Yet, cruise vacations are becoming more popular among diverse demographics because they offer unique experiences, convenience, and the chance to explore multiple destinations and activities in one trip. The revenue in the U.S. cruise market is expected to be $12.50 billion this year and expand at a CAGR of 10.1% to reach $18.36 billion by 2027.

Furthermore, increased consumer demand for diverse cruise experiences and ship design and technology advancements further contribute to the industry's appeal and expansion. The global cruise market is expected to grow at a CAGR of 11.5% through 2030.

Considering these trends, let’s take a look at the fundamentals of the two Travel - Cruises stocks, starting with the one ranked lower from the investment point of view.

Stock #2: Carnival Corporation & plc (CCL)

CCL engages in the provision of leisure travel services internationally. The company operates through four segments: NAA Cruise Operations, Europe Cruise Operations, Cruise Support, and Tour and Other.

On January 30, 2024, CCL announced Celebration Key, its exclusive destination on Grand Bahama, featuring five distinct areas called portals offering a variety of unique experiences, including family-friendly activities, adult relaxation, luxurious private club amenities, retail shopping, and dining venues.

The new destination is featured on over 500 cruise itineraries and will open in July 2025, promising guests endless ways to unlock their own kind of fun in paradise.

In terms of the trailing-12-month gross profit margin, CCL’s 49.56% is 40.5% higher than the 35.28% industry average. Its 15.21% trailing-12-month Capex/Sales is 395.5% higher than the 3.07% industry average. However, the stock’s 2.97% trailing-12-month Return on Total Capital is 51.2% lower than the 6.09% industry average.

For the third quarter, which ended August 31, 2023, CCL revenues increased 59.2% year-over-year to $6.85 billion. The company’s net income stood at $1.07 billion, compared to a net loss of $770 million in the year-ago quarter. Moreover, its EPS came in at $0.79, compared to the prior-year quarter loss per share of $0.65.

For the quarter ending February 29, 2024, CCL’s revenue is expected to increase 21.8% year-over-year to $5.40 billion, while its EPS for the same quarter is expected to remain negative. It surpassed the Street EPS estimates in all of the trailing four quarters. Over the past nine months, the stock has gained 78.8% to close the last trading session at $16.47.

CCL’s uncertain outlook justifies its overall rating of C, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a C grade for Momentum, Sentiment, and Quality. It is ranked #3 out of 4 stocks in the Travel - Cruises industry. In total, we rate CCL on eight different levels. Beyond what we stated above, we also have given CCL grades for Growth, Value, and Stability. Get all the CCL’s ratings here.

Stock #1: Royal Caribbean Group (RCL)

RCL operates as a cruise company worldwide. The company operates cruises under the Royal Caribbean International, Celebrity Cruises, and Silversea Cruises brands, which comprise a range of itineraries.

On December 5, 2023, RCL announced the debut of its newest Icon Class ship, Star of the Seas, scheduled for August 2025 in Port Canaveral (Orlando), Florida. The ship offers a comprehensive vacation with eight themed areas, including attractions like Category 6 waterpark and Crown's Edge skywalk, providing diverse pools, dining, and entertainment options for a personalized and memorable experience.

In terms of the trailing-12-month EBITDA margin, RCL’s 28.53% is 161.8% higher than the 10.90% industry average. Its 17.72% trailing-12-month EBIT margin is 132.4% higher than the 7.63% industry average. However, the stock’s 0.40x trailing-12-month asset turnover ratio is 59.6% lower than the 0.99x industry average.

For the third quarter that ended on September 30, 2023, RCL’s total revenues increased 39% year-over-year to $4.16 billion, while its operating income grew 323.9% year-over-year to $1.27 billion.

For the same quarter, its adjusted net income and EPS increased significantly year-over-year to $1.07 billion and $3.85, respectively. In addition, the company reported adjusted EBITDA of $1.73 billion, up 132.8% over the prior-year quarter.

Street expects RCL’s revenue for the quarter ending December 31, 2023, to increase 29.1% to $3.36 billion. Its EPS for the June 2024 quarter is expected to increase 28.6% year-over-year to $2.34. It surpassed the Street EPS estimates in all of the trailing four quarters. Over the past month, the stock has declined 2.4% to close the last trading session at $126.36.

RCL’s POWR Ratings reflect an uncertain outlook. It has an overall rating of C, which translates to a Neutral in our proprietary rating system.

It is ranked first in the same industry. It has a C grade for Value, Momentum, Sentiment, and Quality. Click here to see RCL’s Growth and Stability ratings.

What To Do Next?

Get your hands on this special report with 3 low priced companies with tremendous upside potential even in today’s volatile markets:

3 Stocks to DOUBLE This Year >

RCL shares were trading at $125.76 per share on Wednesday morning, down $0.60 (-0.47%). Year-to-date, RCL has declined -2.88%, versus a 2.83% rise in the benchmark S&P 500 index during the same period.

About the Author: Abhishek Bhuyan

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.


Carnival (CCL) and Royal Caribbean (RCL) - a Deep Dive Into Upside Potential
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