Key Points
Norwegian Cruise Line shares have pulled back, largely on the impact of Mideast tensions on fuel costs and passenger demand.
That's not to say Norwegian will again disappoint when it next reports quarterly results this week, but shares in competitor Carnival may represent a stronger long-term opportunity.
Similarly priced but with lower leverage and a 1.7% dividend, Carnival may beat out Norwegian Cruise Line when it comes to risk/reward proposition.
Over the past 12 months, shares in cruise line operator Norwegian Cruise Line (NYSE: NCLH) have fallen by nearly 19%. As has been the case with other cruise ship stocks, concerns about the impact of Mideast geopolitical tensions on fuel prices and passenger demand played a big part in these declines.
Later this week, Norwegian Cruise Line reports its latest quarterly results. However, whether the results are strong or weak, I believe there is a much stronger long-term opportunity in this sector than Norwegian.
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Norwegian Cruise Line reports results for the June quarter pre-market on July 30. Sell-side estimates call for earnings of $0.39 per share, or around a 23.5% decrease from the prior year's quarter. Already aware of forecast declines, investors likely will pay greater attention to guidance updates.
Last quarter, again due to the Mideast conflict, Norwegian's management walked back its full-year 2026 forecast, anticipating earnings between $1.45 and $1.79 per share, a far cry from prior guidance, which called for full-year earnings as much as $2.38 per share. Still, even a slight adjustment, such as tightening the earnings range, could have a strong positive impact on sentiment toward the stock.
Although there could be a post-earnings rally, if the latest numbers prove better than anticipated, I would still skip Norwegian shares.
Trading for around 11 times forward earnings, it trades at a steep discount to competitor Royal Caribbean Cruises (NYSE: RCL), which trades for 17 times forward earnings. However, you can also pick up Carnival (NYSE: CCL) at a similar forward multiple as Norwegian. Not only that, Carnival is far less levered and currently pays a dividend, with a forward yield of around 1.7%.
Simply put, Carnival Cruise Lines stock represents a stronger risk/reward proposition and hence should be considered a contender for those bullish on the cruise line industry in the long term.
Thomas Niel has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.