Having weathered the pandemic, the cruise industry is charting a course for major yield growth, thanks to strong demand for affordable vacations, popular private-island stops, and the introduction of bigger and newer ships.
Wells Fargo initiated coverage of the major players in the industry, assigning an Overweight rating to Royal Caribbean Cruises (RCL), Carnival Corporation & plc (CCL), and Norwegian Cruise Line Holdings (NCLH) to reflect an upward trajectory on their return on invested capital (ROIC), cost control, and valuation.
Analyst Trey Bowers views Royal Caribbean (RCL) as the best of the bunch and a Top Idea in his coverage group with ROIC expected to cross 20% in the coming years along with double-digit earnings growth thanks to best-in-class innovation, strong cost controls, and a “robust operating algorithm.”
“RCL led the industry in yield growth from 2019 to 2025, and we believe this could continue over the next 5 years,” Bowers says.
Cost discipline and solid yield growth is also behind an Overweight rating for Carnival Corp.
“Much like its peers, CCL is now very much focused on highlighting its ability to drive ROIC with limited capacity growth in the coming years that should drive strong pricing growth,” Bowers says.
In addition, valuation also makes a compelling argument for CCL, as does the new Celebration Cay private island. Based on the assumption that 2.8 million passengers will visit the island in 2026, Bowers expects $40-$75 of spend per customer that could contribute 35-80 basis points to 3.6% 2026 yield growth estimate.
Third quarter selling presents a buying opportunity for Norwegian Cruise Line (NCLH), Bower says, following a 34% drop in its share price amid concerns that the company’s push into more family-focused capacity would drive pricing pressures.
And despite lagging the industry-leading ROIC at Royal Caribbean (RCL), returns continue to improve at Norwegian (NCLH) and “the company should enter a strong phase of free cash flow generation in the coming years,” Bower adds, adding that Norwegian (NCLH) management has worked “diligently” at curbing cost inflation and should put up best-in-class cost growth in 2025.
While Viking Holdings (VIK) remains a river cruise leader, its Equal Weight rating reflects a “relatively high” valuation and the new competitive threat from Royal Caribbean (RCL), which is entering the river cruise market.
“In spite of our concern about the competitive threats, we recognize VIK is a very well-run company with solid growth that should persist for years go come, but we believe growth could be somewhat slower as their dominant position is challenged,” Bower says, advising clients to wait for a better entry point as its “industry-leading multiple should normalize.”
After a string of losses, shares of Royal Caribbean (RCL), Carnival Corp (CCL), Norwegian Cruise Line (NCLH), and Viking Holdings (VIK) are all trading more than 1% higher.