When it comes to cruise line stocks, there are a lot of fish in the sea. The industry faces the same headwinds and tailwinds, but it doesn't mean that all the operators move at the same speed. Let's consider Carnival Corp. (CCL 2.30%) and Royal Caribbean (RCL 2.03%).
Carnival is the largest player in terms of revenue, fleet, and passengers. However, Royal Caribbean's $86 billion in market cap is more than double Carnival's $39 billion valuation. There are some good reasons for the gap in pricing, but which one is the better investment?
I own shares in both companies, but there are reasons why Royal Caribbean is my larger position.
NYSE: CCL
Key Data Points
It's a cruise ship regatta
The market has been kind to cruise stocks lately. Carnival has doubled over the past year. Royal Caribbean has shot 127% higher. Unlike other travel segments that recovered quickly after the pandemic but have started to fade, cruise lines have never been better than they are right now.
Carnival was holding $8.5 billion in customer deposits for future sailings by the end of the fiscal second quarter that ended in May, more than it has ever held at this point in the year. The previous record was $8.3 billion, set just last year. Royal Caribbean reported fresh financials last week. The record $6.4 billion it had in deposits for advance bookings is an increase over the $6.2 billion it was holding a year earlier.
Image source: Getty Images.
Both companies are earning their massive upticks over the past year. Carnival and Royal Caribbean have consistently exceeded Wall Street profit targets in the past four quarters. Both companies have kicked off 2025 with back-to-back reports of raised full-year guidance. They're coasting across most investing and cruise-specific metrics -- like net yields, capacity, and load factors -- that matter.
The stocks are rising, but so are the fundamentals. The end result is that the two stocks are cheaper than you probably think. Carnival was expecting to earn $1.70 a share for fiscal 2025 back in December. That profitability per-share bar was raised to $1.83 in March and $1.97 in late June.
Meanwhile, Royal Caribbean was eyeing adjusted earnings per share to clock in between $14.35 to $14.65 six months ago. That forecast was boosted to $14.55 to $15.55 three months ago, narrowed to between $15.41 and $15.55. The midpoint has gone from $14.50 to $15.48 a share, a 31% increase. You can buy Royal Caribbean for 20 times this year's bottom-line outlook, and you already know how the country's most valuable cruise line operator mows down those earnings targets.
NYSE: RCL
Key Data Points
Going for the Royal treatment
Carnival is trading for just 15 times this fiscal year's net income guidance. It has delivered double-digit percentage earnings beats for eight straight quarters. It's also growing faster than Royal Caribbean on the bottom line, admittedly on more favorable comps from depressed results a year earlier.
I'm still going with Royal Caribbean as the better play here. Royal Caribbean has historically grown revenue faster than Carnival. It did so again in their latest results. Royal Caribbean has also consistently cranked out best-in-class margins, explaining why the smaller Royal Caribbean has twice the market cap and only a 33% premium to Carnival's full-year profit multiple.
Carnival is getting to the point where it can start paying dividends again, but Royal Caribbean already landed at that port. It reinstated its quarterly payouts a year ago, pushing out a couple of hikes. Royal Caribbean has earned the valuation premium, and it will likely continue to do so in the future.
In the spirit of transparency, I did trim my personal positions in both of these cruise lines by 20% to 25% last month. Since both stocks have at least doubled over the past year, I still own more now than I did a year ago. The industry isn't immune to the bubbling global trade, as well as geopolitical and economic tensions.
However, I obviously remain bullish. I like Carnival, but I really like Royal Caribbean.
