Smooth Sailing Ahead: Cruise Line Shares Poised For Potential Upswing

The cruise industry is seeing huge demand after years of Covid-19 restrictions, with the traditional "wave season" of discounts winding down. However, despite full sailing capacities and top cabins selling out, share bargains remain.

Wave season marks the start of the year when the cruise industry rolls out its most enticing deals and discounts. Carnival (NYSE: CCL), Royal Caribbean (NYSE: RCL), and Norwegian Cruise Line Holdings (NYSE: NCLH), all saw their shares performing well during the second quarter of 2023, the Wall Street Journal reported. 

While Carnival and Norwegian are still over half down from their pre-pandemic values, Royal Caribbean has almost erased its pandemic losses. All three are expected to make further gains due to the industry experiencing its best wave season to date.

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"The wind is behind their sails—pun intended," says Michael Erstad, a senior analyst who covers the consumer sector at the research firm M Science.

Yet, a considerable obstacle persists. Cruise lines found themselves burdened with immense debt to weather the storm during periods of idleness or reduced capacity aboard their ships. From 2019 until the close of the fiscal year 2022, the net debt on the balance sheets of the three largest cruise lines surged, more than doubling to a staggering $63 billion.

In spite of the debt, Carnival's free cash flow was more than $2 billion last year, which analysts predict will more than double by 2027. Royal Caribbean, which has navigated the pandemic best, according to analysts, has had its debt rating upgraded twice by Moody's in the past year.

Investors are urged to evaluate these cruise lines, given that they are still trading below their 10-year pre-pandemic average as a multiple of forward EBITDA.

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This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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