Cruise stocks have pulled back sharply as investors weigh the risk of travel disruptions stemming from the war in Iran, which has largely spilled over into the broader market outside of the transportation sector.
Optimistically, Carnival Corporation CCL) reported favorable Q1 results on Friday, highlighting record revenue and bookings, stronger-than-expected yields, and the launch of its long-term PROPEL Strategy (“Powering Growth and Returns, Responsibly”).
Although Carnival is off to a strong start to the year, the company acknowledged that rising fuel costs and geopolitical tensions in the Middle East are starting to lead to softer booking confidence.
This makes it a perplexing topic of whether cruise stocks are do for a rebound or if there is still more downside risk ahead, with Carnival, Norwegian Cruise Line NCLH), and Royal Caribbean Cruises RCL) stock all plummeting more than 10% in the last month.
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Impacts from the War in Iran
Although the war in Iran is affecting the cruise industry, the impact varies by region and is driven mostly by fuel cost, itinerary disruptions, and booking volatility. Higher fuel costs are pushing cruise prices up, which may soften demand, as crude oil prices have traded over $100 a barrel amid production disruptions in the Middle East and the closure of the Strait of Hormuz.
Only Royal Caribbean actively markets and operates Arabian Gulf itineraries that may be impacted directly, including in Dubai, Abu Dhabi, Oman, and Doha. However, Carnival is most exposed to the spike in crude as it doesn’t hedge its fuel costs, meaning it doesn’t lock in the price of fuel in advance through contracts, making it vulnerable to sudden spikes in oil prices.
Carnival’s Favorable Q1 Results & PROPEL Plan
Carnival’s Q1 sales increased 6% year over year to a record $6.16 billion and slightly edged estimates of $6.1 billion. On the bottom line, Q1 EPS rose to $0.20 compared to $0.13 per share a year ago and topped expectations of $0.18.
More intriguing, Carnival stated its 2026 bookings were up double digits from the same period last year, with 85% of its capacity already sold out.
Other highlights included Carnival introducing PROPEL, its strategic plan targeting higher shareholder returns leading up to 2029, including 50% EPS growth, ROIC above 16%, and the goal of returning more than 40% of its operating cash flow to shareholders via an estimated $14 billion in dividends and stock buybacks.
Lowered EPS Guidance & Growth Comparison
Attributed to higher fuel costs, Carnival lowered its full-year FY26 EPS guidance from $2.48 to $2.21, with the current Zacks Consensus at $2.37 or 5% growth.
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As the most profitable cruise line, Royal Caribbean’s FY26 EPS is currently expected to rise 15% to $18.09, with Norwegian’s FY26 EPS projected to increase 11% to $2.35.
Carnival does remain the largest cruise line in terms of its fleet and revenue, with its top line expected to expand 4% in FY26 to $27.81 billion, although this acceleration trails Royal Caribbean’s projections of 10% growth ($19.77B) and Norwegian’s 7% ($10.56B).
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Valuation & Dividend Comparison
Norwegian stock stands out the most in terms of valuation, trading at just 8X forward earnings, compared to Carnival’s 10X and Royal Caribbean’s 15X. Carnival and Norwegian stock also trade well under the often preferred level of less than 2X forward sales, with Royal Caribbean at 4X.
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Bolstering Carnival and Royal Caribbean’s value to shareholders is that both offer annual dividend yields above 2%, while Norwegian doesn’t offer a payout despite its cheaper valuation.
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Bottom Line
Carnival’s Q1 results were favorable, but its lowered EPS guidance does leave concerns for the broader cruise industry. Investors won’t get an in-depth look at how Norwegian and Royal Caribbean are being affected by geopolitical tensions in the Middle East until their next quarterly reports in late April and early May, respectively.
For now, these cruise stocks all land a Zacks Rank #3 (Hold). Various reasons may be attracting investors to each of these cruise stocks for a potential rebound, but they all share inherent risk right now, and more attractive entry points may still emerge.
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This article originally published on Zacks Investment Research (zacks.com).