Despite the economic and geopolitical uncertainties, the travel industry’s long-term prospects look bright, thanks to pent-up demand for leisure travel. Amid this backdrop, investors could watch travel stocks Royal Caribbean Cruises Ltd. (RCL), Carnival Corporation & plc (CCL), and Norwegian Cruise Line Holdings Ltd. (NCLH) witnessing surprising growth and momentum.

With the easing of pandemic travel restrictions, the travel industry has experienced a steady rebound in performance. Pent-up demand for leisure travel created a wave of demand for hotels, airlines, and cruise lines throughout 2021 and most of 2022.

According to the World Travel & Tourism Council (WTTC), the travel and tourism sector grew 22% year-on-year to reach $7.7 trillion last year despite the economic and geopolitical headwinds. This recovery represented nearly 7.6% of the global economy in 2022, the highest industry contribution since 2019. In 2021, the sector rose 24.7% year-over-year.

Moreover, WTTC’s 2023 Economic Impact Research (EIR) shows the global travel sector this year is projected to reach $9.5 trillion, merely 5% below 2019 pre-pandemic levels when travel was at its highest. Moreover, 34 countries have already exceeded 2019 levels. The Chinese government’s decision to reopen its borders will propel the sector’s growth.

“By the end of the year, the sector’s contribution will be within touching distance of the 2019 peak. We expect 2024 to exceed 2019. Travel & Tourism will be a growth sector over the next ten years,” said Julia Simpson, WTTC President & CEO.

Demand for leisure travel is on the rise as it enhances the physical, mental, and emotional well-being of individuals. As per a report by IMARC Group, the global leisure travel market size is expected to reach $1.33 trillion by 2028, exhibiting a CAGR of 8.1%. Improved lifestyle standards are providing an impetus to the market.

Furthermore, the growing integration of AI, IoT, and big data analytics in the tourism industry is expanding the leisure travel market. Moreover, with the ever increasing penetration of social media among millennials, leisure travel has become a sign of social status, resulting in increased spending on leisure travel activities.

Other factors, including government initiatives like America’s Outdoor Recreation Act of 2023 and the widespread awareness regarding accessible online booking services, must contribute to the travel sector’s growth.

The cruise industry continues to be one of the fastest-growing travel and tourism sectors. Based on the Cruise Lines International Association’s (CLIA) 2023 State of the cruise industry report, cruise tourism is projected to reach 106% of 2019 levels in 2023, with 31.5 million passengers sailing. The number is expected to jump to 36 million by 2024, 37.2 million by 2025, and 39.5 million by 2027.

Meanwhile, according to a report by Market.Us, the global cruise market size is estimated to reach $22.80 billion by 2032, growing at a CAGR of 11.5%.

Given the industry’s bright growth prospects, travel stocks RCL, CCL, and NCLH, with solid growth and momentum attributes, could be ideal additions to one’s watchlist.

Let’s discuss the fundamentals of these stocks in detail:

Royal Caribbean Cruises Ltd. (RCL)

RCL is a leading global cruise company. It operates cruises under the Royal Caribbean International, Celebrity Cruises, and Silversea Cruises brands, comprising a range of itineraries. The company operates more than 64 ships worldwide.

On July 27, RCL raised full-year 2023 guidance on continued revenue acceleration. The company’s 2023 net yields are expected to increase 11.5% to 12% in constant currency and, as reported, compared to 2019. As a result of the accelerating demand environment for its vacation experiences, the company increased its 2023 adjusted EPS guidance by 33% to $6-$6.20.

“We also expect to achieve record Adjusted EBITDA per APCD and Return on Invested Capital this year and are well on our way toward achieving our Trifecta goals,” said Jason Liberty, President and CEO of RCL.

On July 25, Celebrity Cruises, RCL’s award-winning premium cruise line pioneering resort travel at sea, unveiled details of the culinary and beverage program planning for its highly-anticipated new ship, Celebrity Ascent.

The fourth vessel in this line’s revolutionary Edge Series, Ascent, will delight travelers with redesigned restaurants, a new immersive dinner experience, expanded food and cocktail menus, and a plant-based multi-course dinner. The introduction of new flavors and culinary experiences onboard its upcoming ship is expected to bode well for the company.

RCL’s revenue has grown at a 14.9% CAGR over the past three years. Over the same time frame, the company’s EBITDA has increased at a CAGR of 33.8%.

RCL’s total revenues grew 61.3% year-over-year to $2.44 billion for the second quarter that ended June 30, 2023. The increase in revenue was primarily driven by higher pricing and higher shipboard revenue across its key itineraries, including the Caribbean and Europe. The company’s operating income was $771.58 million, compared to a loss of $218.64 million in the same quarter of 2022.

Furthermore, RCL’s adjusted EBITDA grew 969.3% from the year-ago value to $1.17 billion. Adjusted net income attributable to RCL came in at $491.67 million and $1.82 per share, compared to a loss of $530 million and $2.08 per share, respectively. During the quarter, RCL generated $1.40 billion in operating cash flow and repaid nearly $1.60 billion of debt.

Analysts expect RCL’s revenue and EPS for the third quarter (ending September 30, 2023) to increase 35.8% and 1,207.1% year-over-year to $4.06 billion and $3.40, respectively. Moreover, the company surpassed the EPS estimates in each of the trailing four quarters.

Over the past six months, RCL’s stock has gained 53% and 169.6% over the past year to close the last trading session at $104.72. Moreover, the stock is currently trading above its 50-day and 200-day trading averages of $96.57 and $70.94, respectively, indicating an uptrend.

RCL’s strong fundamentals are reflected in its POWR Ratings. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

RCL has a grade of A for Growth and a B for Momentum. In the Travel - Cruises industry, it is ranked first out of 4 stocks.

Beyond what we stated above, we also have RCL’s ratings for Sentiment, Stability, Value, and Quality. Get all RCL ratings here.

Carnival Corporation & plc (CCL)

CCL provides leisure travel services. The company operates a fleet of more than 90 ships that visit nearly 700 ports under AIDA Cruises, Carnival Cruise Line, Costa Cruises, Princess Cruises, P&O Cruises (Australia), P&O Cruises (UK), and Seabourn brand names. Also, it offers port destinations and other services and owns and operates hotels, lodges, and motor coaches.

On July 31, CCL announced an anticipated debt pre-payment of $1.2 billion and refinancing transaction.

CCL’s Chief Financial Officer David Bernstein stated, “Given the confidence we have in our business and its cash flow generation, we plan to retire $1.2 billion of our highest cost debt.  In connection with this retirement, we plan to extend some of the lowest cost public debt in our portfolio. This is yet another step forward in our deleveraging journey, building on the $1.4 billion we already early retired this year.”

On June 15, CCL’s Carnival Cruise Line welcomed the first guests to sail on Carnival Venezia™ from New York City. The ship’s new launch in New York coincides with the busy summer travel season and builds on an exciting period of growth for Carnival as the first of three ships to join the fleet over the following year. The latest addition to the Carnival fleet should benefit the company significantly.

During the second quarter that ended May 31, 2023, CCL’s revenues increased 104.5% year-over-year to $4.91 billion. The company witnessed a continued demand acceleration, with total bookings made during the quarter reaching a new all-time high for all future sailings. Its operating income was $120 million, compared to a loss of $1.47 billion for the second quarter of 2022.

In addition, the company’s cash and cash equivalents were $4.47 billion as of May 31, 2023, compared to $4.03 billion as of November 30, 2022.

The consensus revenue estimate of $21.33 billion for the fiscal year (ending November 2023) reflects a 75.3% year-over-year improvement. Likewise, the company’s EPS for the ongoing year indicates a 97.4% rise year-over-year. In addition, CCL topped the consensus EPS estimates in three of the trailing four quarters.

CCL’s shares have gained 48.8% over the past six months and 120.3% year-to-date to close the last trading session at $17.56. Also, the stock is currently trading above its 50-day and 200-day trading averages of $15.96 and $11.30, respectively, indicating an uptrend.

CCL’s POWR Ratings reflect promising prospects. The stock has a grade of A for Growth and a B for Momentum. Also, it is ranked last among four stocks in the Travel-Cruises industry.

In addition to the POWR Ratings I’ve just highlighted, you can see CCL’s ratings for Stability, Value, Sentiment, and Quality here.

Norwegian Cruise Line Holdings Ltd. (NCLH)

NCLH runs as a cruise company in North America, Europe, the Asia-Pacific, and internationally. It operates the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands. It provides itineraries ranging from three days to 180-day calling on various locations. NCLH distributes its products through retail/travel advisors and onboard cruise sales channels.

On August 2, NCLH’s world’s leading culinary and destination-focused cruise line Oceania Cruises announced to offer a captivating array of 100 sailings in the Caribbean and Tahiti in 2024 and 2025, charting less-known coastlines and taking travelers to boutique ports and off-the-beaten-track islands. This development would drive the company’s growth and profitability.

On August 1, NCLH announced an improved full-year 2023 guidance. The company raised 2023 adjusted EPS guidance from $0.05 to approximately $0.80, reflecting second-quarter outperformance and continued strong results expected for the remainder of this year. Adjusted EBITDA guidance also improved to the range of $1.85 to $1.95 billion.

Over the past three years, NCLH’s revenue and total assets have grown at 15.4% and 2.1% CAGRs, respectively.

NCLH’s revenue increased 85.8% year-over-year to $2.21 billion in the second quarter that ended June 30, 2023. The company’s operating income stood at $272.55 million, compared to a loss of $396.80 million in the prior year’s quarter. Also, its adjusted EBITDA was $461.62 million versus an EBITDA loss of $184.22 million in the same period of 2022.

Furthermore, the company’s adjusted net income was $136.98 million or $0.30 per share, compared to a loss of $478.26 million or $1.14 during the previous year’s quarter.

Analysts expect NCLH’s revenue to increase 77% year-over-year for the fiscal year ending December 2023. For the fiscal year 2024, the company’s revenue and EPS are expected to grow 8.3% and 85.5% from the previous year to $9.29 billion and $1.55, respectively. Also, it surpassed the consensus revenue estimates in all four trailing quarters, which is impressive.

Shares of NCLH have gained 54.1% year-to-date and 40.7% over the past year to close the last trading session at $18.28. Currently, the stock is trading above its 200-day trading average of $15.92, indicating an uptrend.

NCLH’s POWR Ratings reflect this strong outlook. The stock has a B grade for Growth and Momentum. NCLH is ranked #3 in the same industry.

To see the other ratings of NCLH for Value, Quality, Stability, and Sentiment, click here.

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RCL shares rose $0.18 (+0.17%) in premarket trading Friday. Year-to-date, RCL has gained 111.86%, versus a 18.25% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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