Cruise liner share prices sank to multi-month lows in August, troubled by sluggish demand throughout Europe and Asia, sailing disruptions, and the government's ban on passenger cruises to Cuba. While these challenges continue to affect leading operators, a resilient economy, healthy dividends, and low valuations should ensure that the stocks of these companies stay afloat. In fact, the global cruise liner market is projected to grow at a compound annual growth rate (CAGR) of 6.53% between 2018 and 2022, according to businesswire.com.
Furthermore, on the guidance front, cruise line companies have issued conservative outlooks for the rest of the year that have weighed heavily on investor sentiment but also increase the potential for earnings beats in an industry that has a long history of exceeding Wall Street expectations.
Traders who have their sea legs should consider taking a voyage on one of the industry's three leading stocks: Royal Caribbean Cruises Ltd. (RCL), Carnival Corporation & Plc (CCL), or Norwegian Cruise Line Holdings Ltd. (NCLH). Let's review each company in more detail and turn to the charts for possible trading opportunities.
Royal Caribbean Cruises Ltd. (RCL)
With a market capitalization of $22.93 billion, Royal Caribbean Cruises is one of the world's largest cruise liner stocks. The company operates about 60 ships under brands that include Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, and Silversea Cruises. Royal Caribbean's second quarter results impressed, with earnings per share (EPS) coming in at $2.54 to deliver a 3.7% bottom-line surprise. This marks the 18th consecutive quarter that the cruise line operator has posted an earnings beat. Reported revenue of $2.8 billion also exceeded expectations and increased 20.1% on a year-over-year basis. The company recently hiked its quarterly dividend to 78 cents per share, taking the annualized dividend yield to 2.82%. As of Sept. 11, 2019, Royal Caribbean stock trades at about 11 times forward earnings and has gained 17.75% year to date (YTD), roughly in line with broader market returns.
After hitting a 2019 high on May 3, the company's shares spent the next three months trading within a narrow descending channel. In Tuesday's trading session, buyers pushed the price above the pattern's upper trendline and the 200-day simple moving average (SMA), which may ignite a rally toward that early May peak at $130.29. Those who come aboard the cruise liner's stock at current levels should think about protecting downside with a stop-loss order positioned underneath the Sept. 9 low at $108.49.
Carnival Corporation & Plc (CCL)
Carnival, which trades at about 11 times 2020 earnings, operates as a global cruise company, operating more than 100 ships. Some of cruise liner's well-known brands include Carnival Cruise Line, Princess Cruises, and Holland America Line. Carnival reported better-than-expected second quarter results; however, the company lowered its full-year 2019 guidance on the back of the Trump administration's policy change on travel to Cuba and lower ticket prices. Despite the downward revision, analysts have a 12-month price target on the stock at $55.94 – representing a 12.6% premium to Tuesday's $49.66 close. Carnival shares have a market value of $34.3 billion, offer a rewarding 4.20% dividend yield, and are up 3.77% on the year as of Sept. 11, 2019.
Carnival shares traded sideways to lower between late June and August after the company disappointed investors with its leaner outlook for the rest of 2019. However, yesterday's breakout above the June 20 earnings gap high indicates that the market may have fully factored the negativity into the price. Traders who buy here should set a take-profit order near $58, where the price finds overhead resistance from the February swing high. Manage risk by placing a stop just below $47 and amending it to the breakeven point if price climbs above the 200-day SMA.
Norwegian Cruise Line Holdings Ltd. (NCLH)
Norwegian Cruise Line operates as a cruise company in the United States and globally. The Miami-based company targets freestyle and luxury markets across its three brands – Norwegian, Oceania, and Regent Seven Seas. The $11.48 billion cruise line giant plans to introduce 11 passenger ships over the next eight years to increase capacity and grow global market share. Norwegian Cruise Line delivered top- and bottom-line growth of 9.3% and 7.4%, respectively, from the year-ago quarter, aided by organic price increases and robust onboard spending. The positive results also topped Wall Street earnings expectations for the 10th consecutive quarter. Like Carnival, the company reduced its full-year 2019 EPS guidance range. Currently, the stock has a forward price-to-earnings (forward P/E) of 10.44. Norwegian Cruise Line stock trades at $54.67 and has returned a cruising YTD gain of almost 30% as of Sept. 11, 2019.
The company's share price encountered smooth sailing between January and April but ran aground in May through July. Since hitting a six-month low on Aug. 5, the stock has recovered nicely to trade above a crucial area of resistance at $53. Those who anticipate the upside momentum to continue should aim to book profits near the 2019 YTD high at $59.71 and limit losses by placing a stop under the previous resistance level discussed above, which now acts as a floor of support.