Two consumer discretionary stocks that have recently secured a spot on the Zacks Rank #1 (Strong Buy) list are Norwegian Cruise Line NCLH and Royal Caribbean Cruises RCL. These stocks, seen by many as undervalued, operate in an industry now riding the post-pandemic wave and approaching peak travel seasons such as spring and summer.
Post-Pandemic Recovery & Growth Trajectories
With over three years having passed since the tumult of the COVID-19 outbreak, the cruise industry’s broader recovery seems imminent. Projections indicate that Norwegian’s total sales are anticipated to rise by 9% in fiscal 2024, followed by a further 6% increase in FY25 to $9.93 billion. Crucially, Norwegian’s annual earnings are set to skyrocket by 94% this year to reach $1.36 per share, a significant jump from the $0.70 per share reported in 2023. Looking ahead, FY25 is anticipated to witness a 27% surge in EPS to $1.73 per share.
Royal Caribbean is not far behind, with an expected 16% expansion in the top line for FY24 and a projected 9% growth in FY25 to $17.63 billion. Furthermore, the annual earnings forecast for Royal Caribbean depicts a 62% climb in FY24 to $10.96 per share, compared to the $6.77 per share recorded in the previous year. Looking forward, an additional 15% growth in EPS is on the horizon for FY25. Remarkably, Royal Caribbean is poised to surpass its pre-pandemic earnings from 2019 and has already exceeded its pre-COVID sales figures.
Attractive P/E Valuations
On top of their impressive recovery trajectories, both Norwegian and Royal Caribbean shine with their reasonable P/E valuations. Currently trading at 11.7X forward earnings and 13.3X respectively, these valuations signify a considerable discount compared to the Zacks Leisure and Recreation Services Industry average of 18.7X and the broader S&P 500’s 22.1X.
Bottom Line
The upward trend in earnings estimates for Norwegian Cruise Line and Royal Caribbean in FY24 and FY25 indicates a promising outlook for both stocks. This bolstered by their undervalued positions, suggests that there is further room for growth beyond their current levels in the market.
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