Is it Time to Invest in Cruise Line Stocks?

After a period of decline, cruise line stocks may be ripe for investment opportunities. Truist analysts have upgraded their outlook on the sector to positive. In addition, they have upgraded Royal Caribbean Group (ticker: RCL) to Buy from Hold and Carnival Corp. (CCL) to Hold from Sell.

During the first half of 2023, cruise stocks experienced significant growth due to the resurgence of international travel demand and the industry’s post-Covid recovery. Carnival stock saw an impressive increase of 134% in the first six months of the year, with Royal Caribbean climbing 110% and Norwegian Cruise Line Holdings (NCLH) gaining 78%.

However, Truist analysts downgraded the sector to Neutral in July as the stocks became excessively overvalued. Since reaching their peak in July, Royal Caribbean has declined by 15%, Carnival by 23%, and Norwegian by 25%.

Considering these recent losses, the analysts believe it may be an opportune time to reconsider investing in the cruise industry. They highlight “exceptionally strong” booking and pricing trends for 2024 and 2025 as a compelling reason to re-enter the sector.

As investors weigh their options, the cruise line stocks could present interesting potential for growth in the coming years.

Bullish Outlook for Cruise Industry

Analysts at Royal Caribbean are optimistic about the future of the cruise sector, citing strong forward trends and cooled off stocks as reasons for their positive outlook. Led by Patrick Scholes, the team believes consensus earnings estimates for 2024 and 2025 are too conservative. While they expect guidance for next year to be offered in December, they assert that the overall outlook remains bullish.

Royal Caribbean: A Potential Upside of 43%

In light of their positive outlook, the analysts have increased their price target for Royal Caribbean to $137 from $115. This implies a significant upside of 43% based on Monday’s closing price. While they have downgraded Carnival to a new Hold rating, they acknowledge that the company has potential as they believe “rising tides will lift all boats.” Nonetheless, they still consider Carnival a relative underperformer. They have maintained a Hold rating on Norwegian Cruise Line stock.

Progress for Carnival and Norwegian

Redburn Atlantic analyst Alex Brignall recently upgraded both Carnival and Norwegian from Neutral to Buy. According to Brignall, these cruise operators have demonstrated progress in debt repayment and improving profitability. Additionally, he noted that their predominantly international workforces help mitigate the impact of wage inflation in the U.S.

Positive Market Response

Investors appear to be responding positively to the bullish outlook for the cruise industry. Royal Caribbean saw a 2.1% increase ahead of Tuesday’s market opening, while Carnival shares rose by 1.9% and Norwegian stock was up by 1.1%.

In conclusion, analysts remain confident in the cruise sector, expecting strong performance and dismissing conservative earnings estimates. With upgrades and increased price targets, there is optimism for Royal Caribbean, Carnival, and Norwegian Cruise Line.

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