The companies' stocks have far outpaced the benchmark S&P 500 Index's 6% return this year, with Carnival rising 24% and Royal Caribbean up 59%. Both cruise companies touched 52-week highs this month.
Consumers are loosening their purse strings and taking vacations after staying home for the better part of the past two years as unemployment rose. With the economy recovering, North Americans have increased bookings, prompting Goldman Sachs (GS) to upgrade Carnival to "buy" and increase its share-price target to $44 from $36. Some vacationers opted for cruises because they're relatively cheap and perceived to be safer than the hotspot of Mexico, some of whose cities are plagued by drug-fueled violence.
Carnival is the largest cruise operator in the world, with 90 ships and $14 billion in revenue in 2008. Royal Caribbean is No. 2, with 39 ships and nearly $6 billion in revenue last year.Both companies' shares have fallen since early last week, as the industry was battered by bad news. A fire aboard a Carnival cruise ship with 3,300 passengers caused it to lose power. It was adrift off the coast of Mexico for three days before limping home to San Diego. Carnival and Royal Caribbean are coming off big third quarters. Carnival reported a 7% rise in revenue to $4.43 billion and a net-income increase of 22% to $1.3 billion, or $1.62 a share. Royal Caribbean's revenue rose 17% to $2.06 billion, while net income climbed 55% to $357 million, or $1.64 a share. The firms gave upbeat forecasts for the balance of the year. That optimism comes despite a wide range of challenges to the cruise industry, ranging from reports of bed-bug infestation, food poisoning and passengers mysteriously falling overboard. And what goes unaddressed is the issue of what would happen to the U.S. cruise industry if there is a terrorist attack on a ship, some of which can carry as many as 8,500 passengers. Such an event could scuttle the industry overnight.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
24/7 market commentary from Jim Cramer and 20+ veteran Wall Street gurus. Get access to the latest trading ideas on stocks, options, and ETFs as well as a real-time forum to see the pros exchanging their investment ideas.
- Jim Cramer + 20 Wall Street pros
- Intraday commentary & news
- Real-time trading forum
- Actionable trade ideas
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV