The cruise line industry, recently experiencing a drop in stock values, may be ready for investor reassessment, as reported by Truist analysts on Tuesday. The sector's outlook has been upgraded to positive by the analysts who also revised their ratings for Royal Caribbean (NYSE:RCL) Group and Carnival (NYSE:CCL) Corp.
In the first half of 2023, international travel demand surged, driving a robust recovery for the cruise sector post-Covid. This trend significantly boosted cruise stocks with Carnival's stock leaping by 134%, Royal Caribbean witnessing a 110% increase, and Norwegian Cruise Line (NYSE:NCLH) Holdings gaining 78%.
However, the sector was downgraded to Neutral by Truist analysts in July as the stocks became excessively heated. Since that downgrade, Royal Caribbean's stock dipped by 15%, Carnival's by 23%, and Norwegian's by 25%.
Despite these recent losses, Truist analysts now suggest that it might be an opportune time for investors to re-enter the sector. They anticipate strong bookings and pricing trends for 2024 and 2025. The team of analysts led by Patrick Scholes consider the consensus earnings estimates for these years to be overly cautious. They believe that it might not be until December that next year's guidance is provided by the companies.
For Royal Caribbean, the analysts have raised their price target from $115 to $137, indicating a potential 43% increase from Monday’s closing price. Even though they have assigned a new Hold rating to Carnival, they view it as a relative underperformer. However, they find it challenging to justify a Sell rating as they expect all players in the sector to benefit from improving conditions. Norwegian Cruise Line stock continues to hold its rating.
Last week, Redburn Atlantic analyst Alex Brignall also upgraded both Carnival and Norwegian to Buy from Neutral. He noted that cruise operators have made strides in repaying debt and enhancing profitability. Moreover, their predominantly international workforces mitigate the effects of wage inflation in the U.S.
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