Carnival Corporation (CCL), Royal Caribbean Cruises Ltd. (RCL): Should You Buy Tickets for This Carnival?

Royal Caribbean Cruises Ltd. (NYSE:RCL) has consistently improved revenue over the past three years, but earnings declined in 2012. With a net margin just shy of 1%, there isn’t much room for error, and a fire on the Grandeur of the Seas didn’t help matters.

Royal Caribbean Cruises Ltd. (NYSE:RCL) currently yields 1.30% and with a relatively healthy debt-to-equity ratio of 0.99, the dividend looks to be sustainable for the near future.

Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) recently beat second-quarter earnings expectations and upped its full year adjusted EPS guidance to $1.30 to $1.40 from $1.20 to $1.40.

In the second quarter, net revenue jumped 12% year-over-year, thanks to the addition of the Norwegian Breakaway (new ship) and increased ticket prices. It has also refinanced debt to improve its balance sheet.

Currently, Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) owns a debt-to-equity ratio that’s higher than industry average. It does not pay a dividend, which is smart considering the company’s leverage situation. However, the stock is still trading with a super earnings multiple, which makes it a risky investment.

Conclusion

Despite all the drama, Carnival Corporation (NYSE:CCL) is still likely to offer the best long-term investment of this group. It’s by far the largest, which has led to stronger brand recognition and more resiliency to larger market corrections (relatively speaking). A high net margin and a safe dividend make Carnival somewhat appealing.

But the business is sensitive to market corrections and another at-sea incident would crush the stock. Though Carnival might offer some upside potential, the risks outweigh the rewards. Do your own due diligence, but perhaps it’s best to avoid this industry altogether.

The article Should You Buy Tickets for This Carnival? originally appeared on Fool.com and is written by Dan Moskowitz.

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Dan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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