Better Buy in 2023: Norwegian Cruise Line vs. Carnival Stock

The Cruise Lines International Association (CLIA) projects cruise tourism to exceed 2019 levels by 6% this year, with an estimated 31.5 million guests expected to travel aboard.

By 2027, 39.5 million passengers are expected to sail.

With that in mind, let's compare two major players in the space to determine which cruise line stock makes the better buy today. 

The case for Norwegian Cruise Line Holdings

Generating higher revenue in the fourth quarter of 2022 than in Q4 2019, Norwegian Cruise Line (NCLH -1.60%) looks determined to come back from its pandemic crash. The Miami-based operator enjoyed 24% higher onboard passenger revenue and 2.6% more overall revenue than in 2019's fourth quarter.

While Norwegian's 2022 fourth-quarter revenue of $1.5 billion was more than three times 2021's, the company finished the period with a net loss of $482 million under generally accepted accounting principles (GAAP). Compared to 2019's Q4 net income of $121 million, things suddenly don't look so rosy. Can Norwegian turn this ship around?

Despite operating at a loss in the last reported quarter, Norwegian Cruise Line expects an easing of costs this year -- and an increase in passengers. After reaching 87% occupancy in Q4 last year (20% below Q4 2019), Norwegian has achieved 100% occupancy in its yet-to-be-reported first quarter of this year.

As he mentioned during Norwegian's Q4 earnings call in late February, CEO Frank Del Rio expects occupancy to hit "historical levels" by the second quarter of this year. With occupancy near its limit, Norwegian plans to grow its capacity 50% above 2019 levels by 2028, allowing for more passengers.

After all-time-high monthly booking records last November and again this January, Norwegian is likely to report additional booking records with its Q1 earnings release next month. After three straight years of net losses, Norwegian's management team anticipates that a more favorable cost environment in 2023 will lead to $1.8 billion to $1.95 billion in positive earnings before interest, taxes, depreciation, and amortization (EBITDA) this year.

The case for Carnival Corporation

Delivering $4.4 billion in revenue in the first fiscal quarter of 2023 (ended Feb. 28), Carnival (CCL -0.66%) (CUK -0.88%)exceeded 2022's Q1 revenue result by 173% and came within 95% of 2019's Q1 revenue level. 

Thanks to higher ticket prices, better net per-diems, and rising occupancy, Carnival produced an adjusted EBITDA of $382 million in the first quarter, outperforming company guidance. In another better-than-expected Q1 result, occupancy hit 91% -- a 37-percentage-point improvement over 2022's 54% occupancy in Q1.

More importantly, Carnival was able to raise occupancy amid increasing capacity. Management projects capacity, which is already above 2019 levels, to exceed pre-pandemic numbers by 4.5% by the end of the year. 

The first fiscal quarter of 2023 produced Carnival's best booking volumes in its history. This year's booking season proved historic for the cruise industry and Carnival was no exception. For Carnival's North American segment in particular, booking records were broken each consecutive week in January and February. 

Although Carnival ended its fiscal first quarter with a GAAP net loss of $693 million, it surpassed the company's guidance of a $750 million to $850 million loss for the period. For Q2, Carnival forecasts adjusted EBITDA of $600 million to $700 million, which would mean a whopping 57% to 83% improvement over Q1. 

Which cruise line stock is a better buy?

To get a better idea of which stock presents a better long-term investment, I've compared their price-to-sales ratios (P/S), expanding debt levels, and debt-to-equity ratios (D/E).

Data sources: YCharts.

Although Carnival has a lower and more attractive P/S ratio, its debt has expanded more substantially than Norwegian's. Nevertheless, since both companies have nearly identical D/E ratios based on the last quarter, it's clear that Carnival was in a better debt position than Norwegian prior to the pandemic. 

Therefore, I deem Carnival today's winner, especially considering that the company's debt is now shrinking and its adjusted free cash flows are growing. Investors will want to keep a close eye on Carnival's long-term debt, however, ensuring it continues to diminish as management suggested.