Better Buy for 2022: Norwegian Cruise Line vs. Royal Caribbean Group

The cruise industry experienced downward pressure at the end of 2021after the discovery of a new COVID-19 variant, known as Omicron. However, as new data was released about Omicron's lower severity in vaccinated people, the cruise stocks have experienced a recent rebound.

The cruise industry is expected to rebound in 2022, and is expected to grow significantly in the next five years, reaching $57 billion in revenue in 2027.  Therefore, now could be a good time to scoop up shares of cruise stocks.

With this in mind, today I’ll analyze and compare two stocks within this industry, Norwegian Cruise Line Holdings (NCLH) and Royal Caribbean Cruises Ltd. (RCL), to determine which is currently a better investment.

Based in Miami, Florida, NCLH also provides cruise tourism services in North America, Europe, the Asia-Pacific, and worldwide. The company has a fleet of 28 ships with approximately 59,150 berths. RCL, also engages in the cruise business, operating a fleet of 61 ships.  

Recent Developments

On January 7th, shares of cruise line companies soared after Stifel analyst Steven Wieczynski had named 2022 as the "Year of the Cruise!". The analyst expects the cruise operators to reach a breakeven/positive cash flow level in 2022. The firm believes RCL should deliver superior profitability among its peers, with the lowest dilution risk. Given this backdrop, Stifel has boosted Royal Caribbean’s price target to $130 from $111. Besides, Stifel has a price target of $35 for the Norwegian Cruise Line.

Recent Quarterly Performance & Analysts Estimates 

On November 3rd, Norwegian Cruise Line Holdings issued an earnings report for the third quarter of 2021. In Q3, its overall revenue advanced 2,247.9% year-over-year to $153.08 million due to ships' return to service. However, the company missed the Wall Street revenue estimates by $19.22 million. The cruise line company reported a Non-GAAP EPS of ($2.17), missing Wall Street figures by $0.17.

The company plans to back its entire fleet in service by April 2022. It also expects to be profitable in the second half of 2022.  

A ($1.65) consensus EPS estimate for the fourth quarter, ending December 31st, 2021, represents a 29.39% improvement year-over-year. Also, its top line should advance 6,217.50% to $605.15 million in the current quarter.

Royal Caribbean Cruises' total revenue for its fiscal third quarter, ended September 30th, 2021, grew about 1457.2% year-over-year to $456.96 million, however, missing the Wall Street consensus revenue estimates by $161.92 million. Its lower-than-expected Non-GAAP EPS has been reported at ($4.91), compared to a ($5.62) loss per share in the prior-year period.

In Q3, the company experienced the highest guest satisfaction scores and onboard spending per passenger in its history. Besides, sailings for FY2022 saw strong demand, with bookings at higher prices than in 2019. RCL plans to be cash-flow positive by spring, reporting profits in FY2022.  

Analysts expect RCL's EPS to grow 22.19% year-over-year in the fourth quarter of 2021 to ($3.91). RCL's revenue is estimated to increase 3,238.51% year-over-year to $1.14 billion in Q4. 

Comparing Options Market Sentiment 

Looking at the February 18th, 2022 option chain for both NCLH and RCL, we can define options market sentiment by analyzing the open interest levels. In NCLH's case, the open calls/open puts ratio at the $22.50 strike price comes in at 5.05x, showing a strong bullish options market sentiment. When it comes to RCL, the open calls/open puts ratio at the $80.00 strike price stands at 4.12x, demonstrating a relatively weaker bullish sentiment.  

Bullish Options Bets Placed On NCLH  

The options, which expire on January 21st, 2021, saw increased call buying on Monday. The open interest for the $23.00 calls rose by 3,645 contracts to a total of 4,573 open contracts (source: barchart.com). A buyer of those calls would need the stock to rise to $23.34 by the expiration date, a gain of about 8% from NCLH stock’s current price.

Conclusion

I believe that NCLH is currently a better long-term investment than RCL. NCLH's financials and next quarter's top and bottom-line growth rates are superior and NCLH's strong bullish options market sentiment and bullish options bets could support its share price appreciation in the coming weeks.

NCLH shares were trading at $22.04 per share on Tuesday morning, up $0.33 (+1.52%). Year-to-date, NCLH has gained 6.27%, versus a -1.68% rise in the benchmark S&P 500 index during the same period.

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.

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