Cruise Stocks Climb Amid New Offerings, Upbeat Outlook

Cruise stocks are showing strong momentum, with Bank of America data indicating a 6.4% year-over-year increase in monthly cruise spending for March, outpacing overall travel spending. Royal Caribbean (RCL) is leading the sector, with its stock at all-time highs, a Q1 adjusted EPS of $2.71 beating estimates by 7.1%, and an increased full-year adjusted EPS guidance of $14.55-$15.55; rival Carnival (CCL) is also experiencing growth, projecting a 30.3% surge in fiscal 2025 bottom line and exceeding earnings estimates in the past four quarters.

Analysis

The cruise sector is demonstrating significant positive momentum, as indicated by Bank of America credit and debit card data showing a 6.4% year-over-year increase in monthly cruise spending for March, accelerating from a 4.5% yearly gain in February. Notably, cruise spending surged 15.6% month-over-month in March, contrasting with a 3.5% decline in overall travel spending, highlighting robust consumer demand for cruises. This trend supports the Zacks Leisure and Recreation Services industry group's ranking in the top 38% of approximately 250 industries, suggesting potential market outperformance over the next 3 to 6 months. Royal Caribbean Cruises (RCL) is a key performer, with its stock reaching all-time highs, driven by a first-quarter adjusted EPS of $2.71, which surpassed the Zacks Consensus Estimate by 7.1% and marked a significant improvement from the $1.77 adjusted EPS in the prior-year quarter. RCL's Q1 revenues increased 7.3% year-over-year to $4 billion, leading the company to raise its full-year adjusted EPS guidance to a range of $14.55-$15.55, up from $14.35-$14.65. Analysts have responded positively, increasing full-year earnings estimates for RCL by 3.98% in the past 60 days, with projections for a 30.7% bottom-line growth in 2025. Rival Carnival Corporation (CCL) is also showing positive signals; its stock has risen nearly 50% off April lows, supported by approximately 10% year-over-year growth in onboard revenues in Q1 fiscal 2025. Carnival projects its fiscal 2025 bottom line to surge by 30.3% to $1.85 per share, on revenues anticipated to be 4.1% higher at $26.1 billion. Furthermore, CCL has a strong history of exceeding earnings estimates, with a trailing four-quarter average earnings surprise of 458.4%, and currently holds a Zacks Rank #3 (Hold) with a positive Earnings ESP of +8.42%, suggesting a potential for another earnings beat in its upcoming Q2 results.

Key Decisions for Investors

• Investors should evaluate opportunities within the cruise sector, given the strong consumer spending metrics and the favorable Zacks industry ranking which indicates near-term outperformance potential.
• Royal Caribbean's consistent earnings beats, upwardly revised guidance, and strong stock performance suggest it remains a leading candidate, though its all-time high valuation warrants careful entry point consideration.
• Carnival's significant earnings surprise potential, evidenced by its positive Earnings ESP and historical performance, alongside its stock recovery, makes it an interesting prospect to monitor closely, particularly around its upcoming Q2 earnings announcement on June 24th.
• Consider focusing on cruise operators demonstrating robust demand through strong booking trends, effective pricing power, and successful new offerings, as these factors are currently driving positive financial results and outlooks in the industry.