The U.S. cruise industry is riding high as shares of Royal Caribbean Cruises Ltd. (NYSE:RCL), Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH), and Carnival Corp. (NYSE:CCL) rank among the S&P 500's top 15 performers in October.

As Royal Caribbean and Norwegian prepare to report earnings this week, investors are watching closely to see if strong booking trends and earnings beats can sustain the sector's momentum.

Strong October Performance For Cruise Stocks

Cruise line stocks have surged this month, benefitting from upward earnings revisions and renewed optimism around travel demand. Royal Caribbean and Norwegian shares have risen 14.5% and 16.3% month-to-date, respectively, while Carnival is up 18.6%.

Royal Caribbean is scheduled to report its third-quarter earnings on Oct. 29 before the market opens, while Norwegian will release its results on Oct. 31, also ahead of the market open.

Wall Street Expectations: Solid Growth Forecasted

Wall Street Analysts are forecasting substantial growth for both Royal Caribbean and Norwegian Cruise Line during the third quarter of 2024.  

Royal Caribbean is expected to report adjusted earnings per share (EPS) of $5.03 on revenue of $4.11 billion. If met, this would represent a 31% increase in EPS and 18% revenue growth from the same quarter of 2023, as per Benzinga Pro data.

Norwegian Cruise Line is projected to report adjusted EPS of 94 cents and revenue of $2.77 billion. Meeting these estimates would imply a 24% EPS growth and 9% revenue increase year-over-year.

Data: Benzinga Pro

Bank Of America Expects A Double Beat, But Caution Is Needed

"Carnival was very constructive on booking trends when the company reported in September, and we expect Royal Caribbean and Norwegian to echo this commentary into 2025," Bank of America analyst Andrew Didora wrote in a note published Monday.

Didora raised his 12-month price target for Royal Caribbean from $172 to $205 and for Norwegian from $23 to $25, citing "continued healthy yield trends and steady macro trends."

However, he maintains a "Neutral" rating on both stocks, suggesting that while there's momentum, valuations are reaching stretched levels.

Royal Caribbean is currently trading at nearly 12x its projected 2025 EBITDA, a level last seen in 2017. Norwegian trades at around 9.5x its 2025 EBITDA, in line with its historical average.

The expert also explained that while the cruise sector has had strong tailwinds in 2024, some minor headwinds could impact near-term guidance.

Hurricane Milton, which caused Royal Caribbean's Icon of the Seas sailing to be canceled, may slightly affect fourth-quarter revenues.

Norwegian, which only has about 8% of its Q4 capacity deployed in the Caribbean, is also expected to experience minimal disruption from the hurricane.

According to analysts, the effects of Hurricane Milton are unlikely to significantly alter the positive outlook for either company.

Speculation around potential share buybacks has added another layer of interest among investors. Royal Caribbean, in particular, may be considering a buyback as part of its capital allocation strategy.

Bank of America has raised Royal Caribbean's 2024 EPS estimate slightly from $11.52 to $11.58, stating that this "could pave the way for a buyback on this earnings call."