The first 11 months of the year have been good to investors of cruise line stocks. December could be the cherry on top. Momentum is strong, margins are widening, and consumer demand has never been more robust for the industry.
It's hard not to like all of the players. You know what they say about a rising tide that lifts all ships? That's literally what's happening here right now. However, for the month ahead, three stocks worth buying hand over first are Carnival (CCL -2.26%) (CUK -2.41%), Viking Holdings (VIK -2.72%), and OneSpa World (OSW -0.84%).
1. Carnival
The world's largest cruise line by revenue and passenger volume isn't necessarily the best investment among the major operators. Rival Royal Caribbean (RCL -1.90%) commands stronger margins and has been a better performer over the years. Smaller peer Norwegian Cruise Line (NCLH -2.24%) has the lowest forward earnings multiple.
However, Carnival makes the cut here because it's the one reporting fresh financial this month. Carnival's fiscal year ends in November, and it historically announces its fourth-quarter results in the final week of December.
Carnival served up its latest "beat and raise" report three months ago. Revenue rose 15% in its fiscal third quarter that consists of the seasonally potent summer travel months. Adjusted earnings per share soared 62%, making it the fifth consecutive report of topping analyst estimates by at least a double-digit percentage.
| Period | EPS Estimate | Actual EPS | Surprise |
|---|---|---|---|
| Fiscal Q3 2023 | $0.75 | $0.86 | 15% |
| Fiscal Q4 2023 | ($0.13) | ($0.07) | 46% |
| Fiscal Q1 2024 | ($0.18) | ($0.14) | 22% |
| Fiscal Q2 2024 | ($0.02) | $0.11 | 650% |
| Fiscal Q3 2024 | $1.15 | $1.27 | 10% |
Data source: Yahoo! Finance. EPS = earnings per share (adjusted).
The fall quarter should be another winner. Customer deposits at the end of August were 7% ahead of the prior record set a year earlier. Wall Street pros see a 10% top-line increase for the fiscal fourth quarter. They are modeling a small profit, reversing a loss in the same quarter last year.
The stock has soared 44% this year and has more than tripled since the start of last year. Despite the scorching returns in that time, the stock is trading for less than 16 times projected earnings for the fiscal year that began earlier this month. It's a reasonably priced leader with a potential needle-moving financial update over the holidays.
Image source: Getty Images.
2. Viking Holdings
One of the newest publicly traded cruise line stocks hit the market at $24 in May. It has nearly doubled since then. Unlike the larger Carnival, Royal Caribbean, and Norwegian, Viking's specialty is river cruises. Unlike the more conventional operators that take on thousands of passengers on each sailing on ocean voyages, Viking's fleet has smaller vessels that can navigate scenic river itineraries.
Viking dominates its niche. Its market share of the North American outbound market is more than three times larger than its biggest competitor. A Viking river cruise isn't cheap -- costing roughly four times Carnival's per-day average -- but when you only have 95 to 190 staterooms to fill, you can afford to charge a lot for the aspirational experience.
It's not just passengers paying a premium for the differentiated product. Viking is fetching a forward earnings multiple of 20. Carnival, Royal Caribbean, and Norwegian are trading at 13 to 18 times next year's profit targets.
Is Viking worth the markup? I think so. Revenue climbed 11% in its latest quarter, accelerating from the 9% year over year it posted during its first quarter as a public company. Profitability is growing a lot faster, too. Its affluent and seasoned clientele is more resistant to economic setbacks than those of traditional operators.
3. OneSpaWorld
This final entry doesn't own any ships, but it has plenty of hands on deck. OneSpaWorld is the industry's largest operator of cruise ship spas. The company that once traded as Steiner Leisure is back as OneSpaWorld, commanding more than 90% of the market for outsourced cruise spas. All three of the leading cruise lines lean on the specialist for manning their spas. Unlike other services that fleets offer, this is one that requires global recruiting and a network of training centers. OneSpaWorld has mastered this art for decades.
OneSpaWorld also reaches landlubbers with a presence at 52 resorts, but the heart of its business is its floating presence on 196 ships. The business is surprisingly consistent. Outside of the 2020-to-2022 pandemic-smacked years, the cruise industry has experienced more than 20 years of passenger growth. The $888 million to $893 million that OneSpaWorld is targeting for this year is a 12% increase at the midpoint. Adjusted earnings before interest, taxes, depreciation, and amortization should grow at double that clip. If you're looking for an asset-light company that's also a pure play on the growth of on-board cruise ship spending, this is one that that can rub you the right way.
