Carnival Vs Norwegian Cruise Line Holdings: Which Is Best?

Carnival Corp (NYSE:CCL) and Norwegian Cruise Line Holdings Ltd (NYSE:NCLH) are two of the biggest cruise line companies in the world.

When the pandemic hit, both companies were left in tatters. Cruise ships were stuck at sea while ports closed around the world. It’s one of the most defining disasters of 2020, and long-term investors are still reeling from it.

But there are signs the economy could open up in the near future. That means these companies could recover soon, which leads to the question of which is the better investment between Carnival vs Norwegian stock?

Each faces different challenges in returning their respective brands to their former glory days. Not only are prospective cruise-goers worried about catching the virus, but travel restrictions are hard to predict.

Nobody wants to be left out to sea without a paddle, so lets examine these companies from top to bottom to see if they can tread water and even grow moving forward through the 2020s.

Carnival Carried 42% Of All Cruise Line Passengers

Carnival Corp is the cruise market leader, with its brands carrying 42 percent of all passengers while generating 37.1 percent of all revenue. Carnival brands include AIDA, Costa Cruises, Holland America, and Princess, among others.

Combined, analysts expect they will generate $8.833 billion in revenues in 2021. 

Carnival Corp raised $12.5 billion through transactions financing during the pandemic which led to $8.2 billion in cash and cash equivalents by the end of August.

CCL pays a quarterly dividend of $0.50, but it has a dicey track record of payouts. It made three payments in 2019 before cutting them off completely in 2020. It’s unlikely to pay another dividend until at least 2023.

Although the company is dealing with cancelations for cruises booked in 2020 that got indefinitely delayed, it’s still staying afloat. This is because it has a large fleet of ships to leverage and liquidate through scrap yards.

Of course, Carnival has some pre-pandemic skeletons in its closet. But first, here’s a breakdown of Norwegian.

Norwegian Customers Rate It Poorly

Norwegian is relatively small compared to Carnival, carrying 9.5 percent of all cruise passengers and generating 12.6 percent of all revenue. While it has fewer passengers, it does generate more income off each one. That’s not the only advantage it has over Carnival.

Norwegian has $2.3 billion cash and cash equivalents on its balance sheet, and its cash burn rate is lower at around $160 million per month projected by year end.

Norwegian doesn’t pay a dividend, but that also means investors aren’t missing out on one as Carnival investors who bought in for a steady income stream are.

Norwegian had a good reputation among investors, but customers are less forgiving. Norwegian Cruise Line has the lowest customer confidence rate in the industry, with 60 percent of sailings canceled for a cash refund by year end.

This brings to light the risks of investing in cruise stocks over the next year.

Carnival Stock May Not Be Buoyant For Years

COVID-19 was unavoidable in 2020 – in fact, coronavirus beat election results and Kobe Bryant as the most searched terms on Google. The stock market sank, and cruise lines are the ones that were held under water the longest, with their stocks now resembling a financial version of the Titanic wreckage at the bottom of the ocean.

Because it’s so large, Carnival had a $350 million per month cash burn rate by the third quarter of 2020. It’s looking down the barrel of two more years of losses, and there’s no guarantee it has the liquidity to continue at this pace.

And things aren’t getting better anytime soon by the looks of things. The Federal Reserve says it could take years for the economy to return to normal, and there’s a growing distinction between the haves and have nots that will likely affect Norwegian Cruises more.

Employees aren’t happy – tens of thousands of cruise workers were stranded at sea for months when ports shut down. This experience soured many of their desires to return to work aboard a cruise ship ever again.

Then there are controversies Carnival faced in the past over its Princess cruise ships dumping oil in the ocean.

Meanwhile, excursion companies that depend on cruise passengers to bring tourists were strangled by the pandemic. This puts the company in a lot of hot water trying to reopen when things finally do return to normal.

Dangers of Investing in Norwegian

Like Carnival, Norwegian Cruises faces problems keeping operations going while it can’t generate revenue.

Closed ports and travel restrictions mean fewer people even want to take a cruise to begin with. And there are costs to make them safe.

These costly social distancing measures will likely limit how many passengers can board each cruise. They will also need to spend to disinfect common areas, train employees on mask usage, and more. This is going to be a defining moment for both cruise lines.

Norwegian Vs Carnival Stock: The Bottom Line

Cruise line stocks sank when widespread travel restrictions closed ports. This created a global crisis that made cruise ships the mascots of the pandemic. It also kept their stocks trading at a fraction of their former prices while the market continued to reach historic heights.

Many fear the industry will be left behind, and it could be years before it recovers. It’s unclear which companies will survive this timeframe, but investors who have a high appetite for risk will enjoy the discounted rates on either cruise line.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.