Cruise Demand Surges, Three Cruise Stocks Poised for Investment Opportunities

The company raised its net profit guidance by approximately $275 million for the full year 2024 and increased its net margin to 10.25%, up about 75 basis points from its March guidance, citing sustained strong demand and all-time high prices for the remaining bookings in 2024. The cumulative booked position for full year 2025 is even higher than 2024 in both price and occupancy.

This year, the cruise industry has seen an unprecedented surge in demand, with cruise operators hitting new highs in their operational metrics. The outlook is clear, with a strong visibility of future earnings.

"Bookings for 2024 are already over 85%, and we're now looking ahead to 2025, where bookings have already exceeded historical levels," said Matt Boss, Head of Leisure and Retailing at J.P. Morgan. "We project the industry to grow revenues at a high-single-digit rate over the next five years, capturing about 3.8% of the global vacation market by 2028."

Carnival Corporation's Q2 2024 earnings report reinforces the industry's ongoing recovery, with ticket revenue per Passenger Cruise Day (PCD) at $154.49, marking a 7.2% year-over-year increase. Onboard revenue per PCD also rose by 2.9% sequentially, indicating robust consumer spending growth. Occupancy rates hit 104%, surpassing the expected 103.3%.

"In the last three months, not only did we take more bookings for post-2024 sailings than we did for in-year sailings, we set yet another record for the most future bookings ever taken during the second quarter," said Josh Weinstein, CEO and president of Carnival Corp. "In the near term, pricing on bookings taken in the second quarter has continued to run considerably higher for each of the third and fourth quarters."

Royal Caribbean International noted in its Q1 earnings call that half of its clientele are millennials or younger. A report by JP Morgan indicates that between 2021 and 2023, there was a 12% rise in first-time cruisers, with 36% under the age of 40, and 82% already planning their next cruise. Carnival Cruise Line reported in its Q1 earnings call that a significant portion of its 2025 bookings are from first-time cruisers, with a customer base growth of over 30% compared to the same period last year.

Cruise vacations are typically more cost-effective than land vacations. A JP Morgan report shows that the value gap between similar cruise and land travel products has widened to about 40%, double the 20% seen in 2017.

According to JP Morgan Report, with only 4-5 shipyards in the world capable of producing large cruise ships for public use, the annual demand growth of approximately 6% for cruise travel far outpaces the annual supply capacity of 3%, giving cruise operators greater pricing power.

In April 2024, Norwegian Cruise Line placed the largest order in its history to meet the growing demand for cruise travel, with 8 new ships set to join its fleet between 2026 and 2036. Carnival Cruise Line is developing a private beach destination, "Celebration Island," in Grand Bahama, slated to open in 2025.

Cruise stocks led a broad rebound in US travel and leisure stocks in 2023, with the three major cruise stocks achieving record-breaking gains. Royal Caribbean rose by an impressive 156% for the year, followed by Carnival at 125%, which joined the S&P 500 ranks, and Norwegian Cruise Line at 60%.

After Carnival's Q2 2024 earnings report, analysts became more optimistic about the company's performance and booking trends, leading to an increase in price targets.

CITI increased Carnival's target price from $18 to $22, highlighting the company's continuous growth and pricing ability in the post-pandemic era. Similarly, the firm raised Royal Caribbean's target price from $165 to $204. Meanwhile, Macquarie analyst Paul Golding raised Carnival's price target to $25 from $24 and maintained an Outperform rating on the shares.

Moomoo's data displays the current average target prices for cruise stocks. Carnival is at $21.56 (+17%), Norwegian Cruise Line at $20.31 (+9%), Royal Caribbean at $170.62 (+6%), and Viking at $35.88 (+15%), all indicating potential upside from current prices.

Looking at the cruise industry's valuation, Carnival's current EV/EBITDA is at 8.3x, lower than the two-year average of 9.4x, while Royal Caribbean's current EV/EBITDA is at 10.3x, placing it in the 37th percentile over the past two years. These figures indicate that cruise stocks are currently appealing from a valuation perspective.

By Moomoo News   Olivia Xu