Cruise industry poised for upbeat Q3 results, minimal hurricane impact in Q4

Ahead of Q3 results this week, shares of Royal Caribbean Cruises (NYSE:RCL), and Norwegian Cruise Line Holdings (NYSE:NCLH) are both trading with the expectation that results will reflect the strength of the travel sector and the minimal impact hurricanes will have on the industry’s profitability.

Since the beginning of September, cruise stocks have outperformed the S&P 500 by more than 5x, driven by solid card spending, lower crude prices, and an interest rate cut, according to BofA Securities, with the bank anticipating Royal Caribbean (RCL) and Norwegian (NCLH) to echo the “very constructive” booking trends reported by Carnival (CCL) in September.

The hurricane season, which included named-storms Debby, Helene, and Milton in the Gulf of Mexico, could have resulted in a modest headwind for Western Caribbean cruises in Q4, but the impact is likely to be mitigated by strong booking trends and minimal influence on overall cruise destinations. Still, the cancellation of some itineraries, namely RCL’s Icon of the Seas, prompts BofA to maintain its revenue estimates for RCL and only modestly raise NCLH forecasts.

For RCL, BofA is maintaining its Q4 net yield forecast of +6.1%, resulting in full year net yields just above the high end of the +10.4% to +10.9% guidance. BofA’s FY24 EPS estimates move slightly higher to $11.58 from $11.52, previously, given debt transactions in Q3 that could pave the way for a buyback announcement on the subsequent earnings call.

For NCLH, BofA forecasts Q4 net yield growth of +5.9% versus +5.5% consensus estimates, and EPS of $0.09 compared to the $0.08 consensus.

The bank maintains its Neutral rating for both but lifts the price target for RCL by 19% to $205 and NCLH by 8.6% to $25.

Shares of RCL and NCLH are up 1% with RCL setting an all-time high. Carnival Corp (CCL) shares are higher by 5% to their highest level since February 2022.