With bookings at historical levels, the cruise industry seeks a return to its old glory. But while "revenge travel" demand soars, persistent inflation, COVID-19 restrictions, and the Russia-Ukraine conflict weigh heavily on operations for cruise carriers.
Despite lingering headwinds, I think cruise line stocks are due for a comeback as the world returns to business as usual. Let's take a look at two major players in the hospitality-at-sea industry and determine which makes a better buy in today's market.
The case for Carnival
From its January 2018 all-time high north of $72 per share, Carnival (CCL -0.42%) stock has crashed roughly 85% to its current price in the $10 to $11 range. Hesitant investors might wonder whether it's time to buy the dip -- or stay ashore.
Most cruise line companies use pre-pandemic 2019 as the baseline year to compare their current performance. As CFO David Bernstein stated during Carnival's fourth-quarter earnings call, "We are working hard and expect to close the gap to 2019, with occupancy returning to historical levels in the summer of 2023."
Image source: Carnival Corporation.
The Miami-based carrier expects current-quarter occupancy to reach 90% or more of 2019's baseline level, which would also mean a 5% sequential improvement over last quarter. And onboard passenger revenue is anticipated to increase 5.5% to 6.5% above 2019 levels.
By this summer, occupancy is forecast to match 2019 levels -- and it will more than likely surpass them. Q4 2022 passenger revenue already beat the historical baseline, and with more passengers onboard, Carnival should progress on its course toward profitability.
Having resumed service on 90 vessels last year, reboarded more than 100,000 crew members, and restarted operations on eight land-based destinations across the globe, Carnival appears to be on the right track. Affirming the company's progress during the Q4 earnings call, CEO Josh Weinstein eagerly welcomed back Carnival's "nearly 9 million guests."
The case for Norwegian
From its January 2020 high of nearly $60 per share, Norwegian Cruise Line Holdings (NCLH 0.66%) stock has sunk nearly 75% to its current price around $15. But Norwegian's performance is now approaching pre-pandemic levels, and even surpassing them in some aspects. Is the stock undervalued or should investors stay at port?
Also headquartered in Miami, Norwegian posted passenger revenue last quarter that eclipsed 2019 levels by an impressive 14%. Thanks to a combination of higher ticket prices and onboard revenue generation, the cruise operator beat its own expectations. Despite recent price hikes, demand remains high and bookings match pre-pandemic levels.
But while onboard revenue soared last quarter, total revenue landed 15% below 2019 levels. And occupancy aboard Norwegian cruises remained 30% below baseline levels, so there's still plenty of slack to be made up there. The Russia-Ukraine conflict continues to impact operations for Norwegian, which typically relies heavily upon the port of St. Petersburg, Russia.
Amid low occupancy rates, CEO Frank Del Rio holds firm on his pricing strategy of "high value over low price." Rather than cut prices to drive demand, he said on the earnings call he'd rather steer his company toward long-term sustainable profitability, keeping optimistic that current challenges will ease with time.
As an exclusive luxury brand, Norwegian claims to be more recession-proof than other cruise operators. Time will tell, but current-year bookings rival 2019's record performance for Norwegian Cruise Line Holdings.
Which cruise stock is the better buy right now?
Since both Carnival and Norwegian currently operate at a net loss, I've compared their price-to-sales ratios and current-year growth estimates to determine which makes a better buy in today's market.
| Metric | Carnival Corporation | Norwegian Cruise Line Holdings |
|---|---|---|
| Market cap | $13.89 billion | $6.5 billion |
| Price-to-sales ratio | 1.04 | 1.67 |
| Current-year growth estimate | 98.5% | 44.9% |
Data source: Yahoo! Finance.
Based solely on a company's revenue, the price-to-sales ratio can help indicate if a company is undervalued or overpriced: the lower the ratio, the better. With both a lower price-to-sales ratio and a more optimistic current-year growth estimate, Carnival is today's better buy.
