Cruise line stocks are soaring

It may be odd to think of a ship soaring rather than sailing, but that is what cruise line stocks have been doing over the past six months.  In fact, Royal Caribbean’s (RCL) price per share (pps) has risen 87% from July lows of $23 to recent highs of $43.  Likewise Carnival’s (CCL) pps has risen from July lows of $30 to recent highs of $44.

Who are the captains at the helm of this stellar run?

1. A series of great earnings reports and positive forward guidance by the major cruise lines.

  • At RCL, net income increased 55% in the fiscal third quarter as compared to the same quarter the year prior.  A similar story at CCL, with a 22% increase in third quarter net income.
  • As for Norwegian Cruise Line (NCL), in addition to reporting it will build two more new cruise ships, it turned in a third quarter EBITDA improvement of 21.4% versus the same period the year prior.

2.  A sustained resumption of CCL’s dividend, thanks to improving margins as a result of a steady increase in demand and continued success in ongoing cost reductions.

3.  A series of analyst upgrades, including those for CCL by Wall Street stalwarts such as Barclays and Goldman Sachs.

4. And perhaps anticipation from the October 26, 2010 announcement of NCL’s own initial public offering (IPO).

Rudy Martin, Managing Partner at Latin Capital Management and frequent contributor to Forbes Magazine and TheStreet.com recently produced an intriguing video that discusses the positive long term fundamentals of the industry.

As with any investment, keep an eye out for “icebergs” such as increasing fuel costs, a potentially slower European market or unforeseen impacts at the margins.  For example, from on-the-fence potential cruisers giving the idea of a cruise a second thought after the Carnival Cruises’ Splendor was disabled by an engine fire (Carnival reported November 16th the total impact from voyage interruptions and repair expenses will impact fourth quarter earnings by a negative 7 cents).