Redburn Atlantic upgraded its ratings and price targets for Carnival and Norwegian Cruise Line Holdings late Thursday. The hefty target hikes suggest smooth sailing ahead for cruise lines, as a demographic surge supercharges their post-pandemic recovery. CCL stock and NCLH shares dipped after rising premarket.
Redburn Atlantic upgraded Carnival and Norwegian Cruise Line to buy from neutral on Thursday. The firm raised its price target on CCL stock too $23, implying a potential 40% jump. Redburn hoisted its target on NCLH stock to $25, forecasting shares could rally 50% from current levels.
Retirees Fuel Travel Recovery
Analyst Alex Brignall noted strong leisure travel demand is driving the improved pricing outlook for the industry after Covid-19 wiped out about 80% of their pre-pandemic market capitalization.
"Today, the sector has exited intensive care, and the fundamental investment case, of strong secular growth and margin opportunity, is clear," Brignall wrote. He expects baby boomers and retirees to fuel much of the upcoming demand.
"The cruise industry, with an average guest age of almost 50, will enjoy a turbocharged version of this demand strength as the U.S. over-65 population is set to grow at more than 2% per year until 2030, four times the overall population growth of the U.S.," he wrote.
Brignall also noted that retirees are benefitting from high interest rates boosting their savings.
Pricing strength seen by cruise lines lagged that of hotels. The discount for cruise lines vs. hotels grew to almost 40% in 2023 compared to a pre-pandemic discount of 20%, according to Brignall. The cruise industry has so far been unable to narrow that gap, although it hasn't been widening.
"While we are cautious on hotel rates, we expect to see cruise lines close the gap back to almost 20% over the next five years, leading to a 3% annual yield growth rate from 2023 to 2027, supported by helpful secular trends," he wrote.
Norwegian in particular has been hampered by its status as a high-end cruise line with an older customer base and a "more complex, longer cruise product." But Bignall expects Norwegian to improve soon.
Cruise Lines Upgraded, Price Action
CCL stock slid 2.8% Friday after swinging 4% higher Thursday on the upgrade. Carnival shares are extended from a cup breakout in early June.
CCL stock retreated about 18% this quarter, but shares still soared nearly 88.5% in 2023.
NCLH stock inched down 0.2% Friday morning after surging 5.7% Thursday. Norwegian shares tumbled 21% this quarter after hitting a 2023 high of 22.75 in mid-July, following a June 12 breakout from a cup base.
Rival Royal Caribbean fell 2.3% Friday after gaining 2.5% Thursday. RCL stock is consolidating with a 112.95 buy point. Shares nearly doubled this year.
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