Cruise line operators tend to see immense earnings-per-share growth during times of strong economic growth and as a result, their stocks can do very well during such periods.
High levels of growth affords these companies the ability to return cash to shareholders via dividends, making the group of stocks potentially enticing for dividend investors as well.
Two of the three major cruise line operators–Royal Caribbean Cruise Lines (RCL) and Carnival Cruise Lines (CCL) – pay dividends to shareholders. You can see our entire list of 674 dividend-paying consumer cyclical stocks here.
While the third major cruise line operator, Norwegian Cruise Line Holdings (NCLH), does not pay a dividend, we expect all three stocks to generate positive returns for shareholders each year.
Valuations in the sector have largely come down of late, meaning the cruise line operators offer value at current prices as well, in addition to driving up current dividend yields for certain names.
In this article, we’ll take a look at the three cruise line stocks we have in our coverage universe and rank them according to their total return potential.
More information can be found in the Sure Analysis Research Database, which ranks stocks based upon the combination of their dividend yield, earnings-per-share growth potential and valuation to compute total returns. The stocks are listed in order below, with #1 being the most attractive for investors today.
Cruise Line Stock #3 – Royal Caribbean Cruise Lines
Royal Caribbean Cruises was founded in 1969 and since that time, has grown into six different brands that have 40 cruise ships in service. RCL is the second largest cruise operator in the world and services six different continents. The company produces $9.4B in annual revenue and the stock has a $22B market cap.
The company’s recently reported Q1 earnings report showed just a 1% increase in revenue but growth in adjusted earnings-per-share was 10%. RCL’s run of record earnings continued as it sees strong bookings, which is also positively impacting pricing. This is an industry trend that RCL is taking full advantage of as more and more consumers choose cruises for their vacations. Gross yields were up 3.1% in Q1 and net yields were even better, rising 4.5%.
Source: Q1 earnings presentation, page 3
Guidance for the year, as we can see above, was very strong. Management is forecasting further strength in booking volume and pricing, giving RCL nearly $9 in earnings-per-share for 2018. Overall, RCL’s mixed Q1 results were largely ignored by investors in favor of the strong outlook that we see above.
RCL’s earnings-per-share has more than quadrupled since 2012, a very impressive feat indeed for any company. There is a significant risk associated with cruise line operators when recessions strike and RCL certainly isn’t immune to that threat, but we see the industry – and RCL – as having a bright outlook for the foreseeable future.
We are forecasting 8.1% earnings-per-share growth for RCL moving forward as it has meaningful tailwinds that should outweigh potential headwinds. Fuel costs and currency exposure are common risks for cruise line operators and RCL carries those risks. RCL hedges 50% of its fuel costs so volatility will be lower from that factor, but currency swings can impact results positively or negatively at any given time depending upon where the US Dollar trades.
