The cruise industry expected to ride a wave of growth for investors – analyst

Consumer interest in cruises remained consistently strong in 2023 and 2024 and is expected to continue in 2025 and investors seeking strong growth characteristics, affordability, attractive valuation, and the tariff-free status of the cruise industry will continue to push multiples modestly higher.

According to industry data, the cruise industry is expected to see a 20% increase in the number of passengers to 30 million, surpassing pre-pandemic levels.

With that, Citigroup has maintained its Buy rating for the major players in the sector and raised its price target for Carnival Corp (NYSE:CCL) by 7% to $30, and by 10% for Royal Caribbean (NYSE:RCL) to $283 in respect of the increased appetite for cruise stocks.

For Carnival Corp (CCL), the largest of the three with 37% of the worldwide fleet, Citigroup’s James Hardiman believes that if the current levels of demand can persist going forward, the Carnival (CCL) model gets all the more powerful “given a minimalistic order book and the potential for outsized deleverage and return on invested capital.”

The second largest, Royal Caribbean (RCL), commands 22% of the worldwide fleet and 25% of worldwide capacity, and is the best performing of the three with a 104% gain in its stock price vs 32% for the S&P 500. While significant value was destroyed during the pandemic as the company struggled to keep its fleet afloat, RCL weathered the storm better than most, with the best momentum of the cruise industry headed into COVID. “We see no reason that this will not continue to be the case going forward given arguably the best assets in the space and a strong operational history of keeping costs in check,” Hardiman says, adding that RCL’s industry-leading yield/cost opportunity represents the best blend of risk and reward in the cruise industry.

“There is considerable upside to earnings” for Norwegian Cruise Line Holdings (NYSE:NCLH) as the company’s shift in strategy from “quality at all costs” to a more balanced yield/cost relationship gives Hardiman confidence that the considerable pricing opportunity ahead will not be offset by runaway costs. In Q3, NCLH earned a profit of $0.99 per share, an increase of 30% year-over-year, and 147% sequentially.