Wall Street still bullish on cruise stocks as demand shows no sign of slowing

Published Thu, Dec 7 202312:17 PM ESTUpdated Thu, Dec 7 20234:24 PM EST

Cruise stocks have had a standout year due to the post-pandemic demand surge the industry has been enjoying. That demand is expected to continue in 2024. Some 35.7 million passengers are expected to take a cruise next year, up from 31.5 million in 2023 and 6% higher than 2019, according to the Cruise Lines International Association. Meanwhile, shares of Royal Caribbean have jumped 140% so far this year and hit a 52-week high Thursday. Carnival is up about 120%, while Norwegian Cruise Line Holdings added 51%. Despite those massive runs higher , many Wall Street analysts are still bullish. After Royal Caribbean's latest meeting with analysts over the weekend, for instance, several firms reiterated their buy ratings on the stock. "Following our time with management, we feel increasingly confident in RCL's positioning as best-in-class operator of some of the highest quality assets in the cruise industry," Stifel analyst Steven Wieczynski wrote in a note Monday. His $135 price target implies 14% upside from Wednesday's close. Citi analyst James Hardiman called Royal Caribbean arguably the best company in the firm's cruise coverage. "We think RCL shares are favorably valued headed into an unpredictable 2024, and we like the company's ability to finish out 2023 on a strong note and put 2024 guidance in a place that both satisfies investors initially and still positions the company to modestly exceed expectations going forward," he wrote in a Monday note. RCL mountain 2020-01-01 Royal Caribbean's performance since Jan. 1, 2020 The cruise industry was the last in the travel sector to recover from the Covid-19 pandemic due to shutdowns and restrictions. It was largely smooth sailing for cruise stocks this year until late summer and fall, when the combination of high oil prices, the disruption of Hawaiian travel due to the Maui wildfires and the Israel-Hamas war sent shares lower. These days, oil prices are down, with U.S. crude falling below $70 a barrel Wednesday. Hawaiian cruises are back in business, while itineraries to Israel have been scuttled for now. Since the Oct. 31 close, shares of Carnival have rallied 55%, Royal Caribbean has gained 38% and Norwegian Cruise Line added 37%. Cruises also have a cost advantage. While prices have been rising , cruises are about 25% to 30% cheaper than a land-based vacation, said Truist analyst Patrick Scholes. "If people are looking for relative value, it is still a cruise," he said. Black Friday into wave season Results from Black Friday/Cyber Monday sales also show positive momentum in bookings. The deals came ahead of wave season, which starts after the holidays and continues into the end of March. The time is usually marked by promotional deals. Last week, Carnival touted record bookings for its Princess , Holland America and Cunard lines during the Black Friday period. During its meeting with analysts, Royal Caribbean didn't divulge details of the success of its Black Friday and Cyber Monday sales because it doesn't provide intra-quarter updates, Deutsche Bank analyst Chris Woronka said. "Management did indicate that it was not surprised by reports of historically strong Black Friday bookings from industry peers," he wrote in a Monday note. "In our view, RCL's 4Q guidance and commentary on the 3Q earnings call encapsulates the company's bullish expectations for 2024 bookings (inclusive of BF/Thanksgiving Week and 'Early Wave')." During that earnings call on Oct. 26, Royal Caribbean CEO Jason Liberty said demand for 2024 bookings continued to accelerate, consistently outpacing 2019 levels by a "wide margin." "This has resulted in a booked position that is ahead of all prior years, at higher rates, further positioning us for another year of strong yield and earnings growth," he said. Royal Caribbean is the favorite pick of Truist's Scholes. He has a buy rating on the stock and a $134 price target. However, he noted that the stock has run much higher since he upgraded it in November. Royal Caribbean has an average analyst rating of overweight and average price target of $118.74, just slightly higher from Wednesday's close of $118.17, according to FactSet. Analysts also like Carnival, which has an average analyst rating of overweight, per FactSet. Its average price target is $17.08, about 2% lower than Wednesday's close. CCL mountain 2020-01-01 Carnival's performance since Jan. 1, 2020 Last week, Melius Research upgraded shares of Carnival to buy from hold, citing growing momentum in booking trends for the industry as one of the reasons for the call. Excess free cash flow is also now readily available, said analyst Conor Cunningham. "With Josh Weinstein now one year into his tenure as CEO there seems to be a heightened approach to maximizing returns and regaining their financial position within the industry," he wrote in a Nov. 27 note. "Management has actively managed the asset portfolio to better allocate to areas where there is not only an immediate return but further upside over the years to come." Cunningham's $19 price target implies about 9% upside from the prior session's close. Norwegian also has an average analyst rating of overweight, but its average price target of $16.76 suggests nearly 8% downside. NCLH mountain 2020-01-01 Norwegian Cruise Line's performance since Jan. 1, 2020 Keep things in perspective The cruise stocks' recent hit from global events underscores the risks investors may face, Truist's Scholes cautioned. He is also carefully watching the recent moves higher. "We are positive but we need to keep it in perspective here," he said. For the stocks to continue to work, customer demand needs to remain strong, for one, Scholes noted. "You can't have ongoing global events get worse or you can't have surprise new ones and you can't have oil spike up again," he said. — CNBC's Michael Bloom contributed reporting.