These two cruise line operators are buys as business returns to normal, according to Wells Fargo. Analyst Daniel Politzer initiated coverage of Royal Caribbean and Norwegian Cruise Line Holdings with overweight ratings, saying in a Tuesday note to clients that two cruise line operators are favorites in a sector that is likely to make a huge comeback next year when travelers resume sailing. "We view cruise lines as one of the few remaining recovery stories in consumer, offering high operating leverage that should become a tailwind into 2023 as business returns to normal," Politzer wrote. Before the pandemic, cruise lines were generally considered "highly predictable" businesses. As sailings resume this month, companies expect to generate positive cash flow this year, the note said. Wells Fargo favors Royal Caribbean for its ability to balance both price and capacity increases, a premium pricing for newer ships, and high North America exposure. The cruise operator also differentiates its business for customers with private island destination trips. Royal Caribbean was issued a $93 price target per share, representing nearly 15% upside from where shares closed on Tuesday. Analysts also favored Norwegian Cruise Line Holdings for its small fleet of ships that is able to attract higher prices from consumers. The company is also expected to expand its fleet by 40% over the next five years. Norwegian Cruise Line Holdings was issued a $27 price target. The target is about 27% above where shares closed on Tuesday. Wells Fargo was less bullish on Carnival Cruise Line , giving it an underweight rating. Analysts are concerned that geopolitical risks will weigh on the company that has significant international exposure. —CNBC's Michael Bloom contributed to this report.
Royal Caribbean International's cruise ship 'Allure of the Seas' in Fort Lauderdale as seen from nearby Hollywood, Florida, November 11, 2010.
Joe Skipper | Reuters
These two cruise line operators are buys as business returns to normal, according to Wells Fargo.