Goldman Sachs has recently taken a bullish stance on the cruise industry, issuing Buy ratings for Royal Caribbean Cruise Ltd. RCL and Carnival Corp. CCL, while maintaining a Neutral rating for Norwegian Cruise Lines Holdings Ltd. NCLH
This optimism stems from significant industry shifts leading to improved business models “with several incremental pricing tailwinds still to come,” according to a team of equity analysts led by Lizzie Dove.
The firm highlights four key factors expected to drive multi-year pricing tailwinds: a favorable supply/demand setup for cruise operators, the positive impact of new ship launches and fleet upgrades, advancements in revenue management reducing the need for discounting, and future land investments enhancing overall value.
This optimistic outlook is underpinned by the potential for significant balance sheet improvements across these companies, promising a more attractive valuation and broader investor interest moving forward.
“RCL is currently the leader, but CCL is about to catch up,” Goldman Sachs wrote.
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The ‘Halo Effect’
According to the Goldman Sachs report titled “Cruise: The next wave of the rising tide,” the launch of new ships will drive demand for cruise travel.
Royal Caribbean is recognized for its leadership in capitalizing on these trends, with new vessels like the Icon of the Seas predicted to outperform, generating ticket price premiums of over 140% for certain voyages in September 2024 and March 2025 compared to other ships in the fleet.
“Search for cruises spiked significantly around the launch of the Icon of the Seas,” analysts wrote.
With the upcoming launches of several new megaships, including Utopia of the Seas this year and Star of the Seas in 2025, the investment bank anticipates a continued positive momentum for the cruise industry, further broadening the reach of cruise lines.
In addition, cruises continue to represent a competitive alternative to land-based travels. Goldman Sachs found that cruises are approximately 27% less expensive than comparable land-based all-inclusive resorts, even when accounting for additional cruise-related expenses.
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Price Targets Reflect Upside Potential
In their analysis, Goldman Sachs sets a price target (PT) for Royal Caribbean at $162, implying a 25% upside from current levels, due its superior execution and strategic fleet optimization.
Carnival Corp. also receives a Buy rating with a PT of $20, implying a 20% upside from current prices, as the firm anticipates a favorable outlook for 2024, supported by brand improvements, controlled supply growth, and significant private island investments.
Norwegian Cruise Line Holdings (NCLH), despite progress, is given a Neutral rating with a PT of $19, due to less conservative guidance for 2024 and pending evidence of cost efficiencies.
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