Carnival vs Royal Caribbean: which is the best cruise stock to buy?

Royal Caribbean (NYSE: RCL) and Carnival (NYSE: CCL) stock prices have diverged sharply in the past few months as demand in the cruise industry rebounds. RCL shares are down by just 22 basis points this year while Carnival has slumped by 24%. Similarly, RCL is up by 100% in the past 12 months while Carnival has jumped by 44%.

Carnival vs Royal Caribbean stocks

Royal Caribbean and Carnival are two of the biggest cruising companies in the world with an enterprise value of $55 billion and $47 billion, respectively. Norwegian Cruise Lines comes a distance third with a valuation of over $22 billion.

These companies have been in the spotlight in the past few years as investors assess their recovery after the Covid-19 pandemic. At the time, these firms became toxic wastelands as governments shut them down since they are seen as non-essential.

And unlike airlines that received billions of dollars in bailouts, the firms received nothing because they are registered in tax havens. As a result, they all raised substantial sums of money by selling equity. They also boosted their total debt to stay afloat.

Royal Caribbean’s total long-term debt jumped from $8.2 billion in 2019 to over $17.9 billion in 2020. It peaked at over $20 billion in 2022. Further, the company’s total outstanding shares have jumped from 209 million in early 2020 to over 256 million today. Its maturities for 2024 stand at $1.7 billion followed by $2.6 and $3.6 billion in 2025 and 206, respectively.

Carnival raised more money than Royal Caribbean. Its total long-term debt jumped from $9.6 billion in 2019 to over $22 billion in 2020 and peaked at over $31 billion in 2022. Its long-term debt stands at $28.5 billion today. Royal Caribbean’s 

Carnival has reduced some of its long-term debt. According to its 10k report, the company will have maturities of over $2 billion this year followed by $2.2 billion, $3.1 billion, $6.28 billion, and $8.9 billion in the next four years, respectively.

Debt and maturities are a big concern for Royal Caribbean but I believe that the two companies are in a good shape unless a black swan event happens. For one, these two countries are reporting record bookings and revenues as the cruise industry rebounds.

Carnival’s annual revenue jumped from $12.1 billion in 2022 to over $21.59 billion in 2023. Similarly, Royal Caribbean’s revenue soared from $8.8 billion to $13.9 billion. Its total net profit jumped to over $1.68 billion.

Fundamentally, Royal Caribbean is a better investment because of its simple business model. It only has Royal Caribbean, Celebrity Cruises, and Silversea Cruises. The company also owns part of TUI and Hapag-Lloyd Cruises. Most importantly, Royal Caribbean mostly targets American customers.

Carnival, on the other hand, is a more diversified company that resembles a conglomerate. It owns its eponymous Carnival Cruise Line and several other brands like Princess, Holland, Seabourn, Cunard, AIDA, Costa, and P&O Cruises.

This diversification is a good thing. However, it also creates more layers and complexity, which can hurt its margins. The most recent results showed that Carnival had an EBITDA margin of 21.23% while Royal Caribbean had 31%. Its return on equity stood at 6.30% against Royal Caribbean’s had 43%.

Therefore, if your goal is to invest in cruise lines, I believe that Royal Caribbean is the better option. Nonetheless, Carnival has room to bridge the performance gap this year as its performance improves.

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