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An unusual pair of stocks typically beat the market this time of year: cruise lines

  • Analysts at JPMorgan pointed out that shares of Royal Caribbean and Carnival have outperformed on average the S&P 500 during the third and fourth quarter over the past five years.
  • JPMorgan upgraded Royal Caribbean's stock Thursday, but not Carnival's.
The Quantum of the Seas sails into New York Harbor.
Royal Caribbean International | PRNewsFoto
The Quantum of the Seas sails into New York Harbor.

The second half of 2017 will be full steam ahead for these two cruise-line stocks if history is any indication.

Analysts at JPMorgan pointed out Thursday that shares of Royal Caribbean and Carnival have outperformed on average the S&P 500 during the third and fourth quarter over the past five years.

The chart below shows a comparison of the three components' average performances during the two quarters:

JPMorgan upgraded shares of Royal Caribbean to overweight from neutral and hiked its price target to $130 from $111 on Thursday. Royal Caribbean shares rose 1.7 percent to trade at $114.45.

Analyst Joseph Greff said they upgraded the stock because of Royal Caribbean's seasonal outperformance, expected growth in pricing and a "reasonable valuation" at about 13 times forward earnings per share.

"To us, RCL's valuation is especially attractive in relation to EPS growth, which we estimate at +19.1% and +19.3% in 2017E and 2018E, respectively, compared to CCL at +7.7% and +14.5%, respectively," analyst Joseph Greff said in a note Thursday.

Greff also said JPMorgan's survey data implies strong pricing growth for Royal Caribbean during the next four quarters. "We view this as encouraging and points to continued booking
momentum," he said.

However, JPMorgan kept its neutral rating on Carnival shares. Greff states:

To us, RCL is the one to own here, as we believe it has the best balance of (1) scale, (2) diversified customer sourcing, (3) pricing/demand momentum (supported by our survey work) and (4) relative (and absolute) valuation. That said, the recent shift of investor attention toward Leisure/Hospitality and away from Retail within the broader consumer landscape has likely benefited all of Cruise, and this trend probably continues.