The U.S. economy is showing signs of recovery to pre-recession levels, and personal disposable income has skyrocketed since late 2009. Given this, we may be poised for a boom in the tourism industry soon. That’s why I’m analyzing the 3 top publicly traded cruise liners to see if any are investment worthy as the summer doldrums approach.
US Per Capita Disposable Personal Income data by YCharts
The new guy
Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) went public this year, and investors have been taking the opportunity to invest in the international cruise liner. Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) has a significant amount of ports in America and itineraries that go all over the globe. The company went public in January this year, and used the proceeds to pay off senior debt due in 2016. The company has brought in $2.3 billion in revenue in the trailing twelve months.
Their first-quarter results were dismal, as it lost $0.49 per share, despite a consensus of a profit of $0.03. Since then, the stock has dropped 5% to about $30.50, and retains a P/E that hovers around 70. While this might seem high at first glance, company’s P/E is significantly lower than the industry average of 100.
Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) plans to add the Norwegian Breakaway, a new cruise line that will be docking in New York, to add to their already impressive fleet.
With risk comes reward
Carnival Corporation (NYSE:CCL) is a company with a similar business model to Norwegian Cruise Line Holdings Ltd (
NASDAQ:NCLH), as well as a small amount of worldwide lodges and motor coaches. And even though the company is similar, it has more risk (and possibly more reward) than the other publicly traded cruise liners.
Carnival Corporation (NYSE:CCL), unlike Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH), had a great first quarter. It increased cruise capacity by 4%. Carnival doesn’t expect to keep up the momentum, however. The company dropped its outlook for annual earnings from $2.20 to $1.95 due to a decline in bookings. Economic instability in Europe is partly to blame. The other factor seems to be the recent “Triumph Incident,” when one of Carnival Corporation (NYSE:CCL)’s Cruise Ships was stranded in the Gulf of Mexico for days. The bad media attention proceeded to hamper sales.
With all of this in consideration, Carnival Corporation (NYSE:CCL) has cut its annual earnings forecast. Even with all of this in mind, the firm still sits at a very cheap P/E of 18.4. Along with a 2.90% dividend yield, this underrated cruise line has the potential for a lot of upside in 2013.
Old faithful
Royal Caribbean Cruises Ltd. (NYSE:RCL) is the best performing of all the cruise lines after crushing its Q1 earnings outlook and almost doubling quarterly net income year over year. Royal Caribbean brought in $76 million in Q1 2013 versus $47 million in Q1 2012.
The 41-cruise line company credits its success to higher bookings in North America. But, unlike Carnival Corporation (NYSE:CCL), Royal Caribbean Cruises Ltd. (NYSE:RCL) also witnessed strong demand from European guests in Q1 this year.
Royal Caribbean Cruises Ltd. (NYSE:RCL) also takes a very different approach than Carnival when it comes to cruises in the Middle East. While Carnival is trying to limit cruises in the Eastern Mediterranean to 10% of cruise capacity, Royal Caribbean is doing the opposite. It cites strength in the GCC region, and plans to continue to grow in that area.
The success of the company comes at a price however. The firm’s price to earnings ratio stands at 180 — significantly higher than the industry average of 100. The beta is also extremely high; Royal Caribbean is three times as volatile as the S&P 500.
Which cruise should you take?
In the end, there are three very different ways to invest in cruise tourism. Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) represents a new, undervalued opportunity to invest in a company with growth on the horizon. Carnival is an extremely undervalued option, but represents risk with a lowered outlook for the year and what seems like constant media attention for the wrong reasons. Royal Caribbean is the best business, with strong growth and proactive management, but it comes at a hefty price that is 180 times its earnings.
As a value play, Carnival would be the most lucrative, but also the most risky. Norwegian Cruise Line stands in the middle, with a higher P/E but better potential for a good year ahead. Royal Caribbean Cruises Ltd. (NYSE:RCL) will do likely have the best year, but is already extremely popular with investors and has a very high beta. There are trade-offs, but each cruise line is worth considering in this bull market.
The article Cruise Through 2013 With These 3 Tourism Stocks originally appeared on Fool.com and is written by Ryan Gilbert.
Ryan 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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