Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) CEO Frank Del Rio believes Wall Street is acting irrationally in the case of his company’s shares, which have lost 6% this year. Speaking to TheStreet this week, Del Rio noted the concerns about supply growth but said that what’s more important than that growth is how companies similarly grow demand to meet it.
In the case of Norwegian, Del Rio said that bookings for 2019 are even stronger at this point than the bookings for 2018 were at the same point last year, and at a higher price to boot. Del Rio added that during an investor event that day, he challenged those assembled to provide one data point that would combat all of the positive data points he had shared, which was met with silence.
Last month, Wedbush analyst James Hardiman stated that while there is legitimate cause for concern about the industry’s capacity growth, that concern is overblown and shouldn’t affect cruise companies’ guidance in the near-term. He rates Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) very highly in particular, given the lower exposure that it has to the Caribbean market, where pricing has been soft.
Carnival Corp. (NYSE:CCL), the largest of the three cruise giants with a fleet of over 100 ships, which accounts for more than 22% of the cruise ships in operation, also noted strengthening bookings at higher price points heading into 2018 and enjoyed accelerated revenue growth in 2017. Also of note was the company’s strong revenue yield growth of 9.2% in the first-quarter of this year. Investment bank Stifel Nicolaus encouraged investors to buy Carnival on its April weakness, noting that the market was making too much of Caribbean pricing in how they were viewing the broader cruise market as a whole.
Royal Caribbean Cruises Ltd (NYSE:RCL) enjoyed the biggest gains in 2017 among cruise operators and has suffered the hardest fall in 2018. Nonetheless, its bookings are at record levels, and at higher rates than last year, and the company raised its fiscal 2018 earnings guidance alongside its solid first-quarter results.
While capacity is growing, there are few signs that the industry won’t be able to bear it in the near-term, with those fears appearing to be more smoke than fire. On the other hand, rising fuel costs will have an impact on the profitability of Royal Caribbean Cruises Ltd (NYSE:RCL) and other cruise operators, despite the hedges they have in place, though further pullbacks in May have already priced the impact of rising fuel into the stocks.
Given their recent weakness, cruise stocks offer some decent upside potential, while packed bookings for months in advance will limit the threat of any nasty surprises. While these investment waters do have a few sharks hidden beneath the surface, they’re unlikely to sink any portfolios in 2018.