The post-pandemic travel boom has revived sectors like resorts and transportation—so it only makes sense the resurgence has extended to resorts that double as transportation: Cruise ships.
Despite their reputation for being a vessel solely for aging Americans and Disney-loving families, cruises are enjoying a comeback thanks to first-timers and Gen-Z passengers.
As post-pandemic travel continues to surge, cruise deals and promotions are attracting a whole new customer base. Over the past two years, 27% of passengers said it was their first time on a cruise, up 12% from the prior two-year period, according to the Cruise Lines International Association. An even more positive bit of news for the industry: 82% of customers said they’ll book another cruise.
Analysts expect the number of cruising customers to rise from 31.7 million last year to 34.7 million by the end of 2024. And these cruise-goers are skewing younger than ever. Passengers under 40 make up about 42% of passengers, up from 35% in 2019—and if cruise companies can turn these new seafarers into customers for life, they can reap the rewards ad nauseam.
So why aren’t cruise stocks riding the wave?
Cruise companies clearly have plenty of wind in their sails, but shares of both Carnival (CCL) and Norwegian Cruise Lines (NCLH) have sunk 10% year to date.
With solid fundamentals and a huge boon to their businesses ahead, some of these cruise stocks look like buying opportunities—so why aren’t investors piling aboard?
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Royal Caribbean's (RCL) stock has fared better than some of its competitors largely due to the debut of the Icon of the Seas, which was launched in January. Shares are up 24% year to date.
Viking (VIK), the adults-only cruise operator, is up about 18% since its lucrative IPO earlier this month, and according to Bank of America analysts still has more room to run. BofA gave the stock a “buy” rating and a $35 price target, noting that the stock “is well-positioned in the industry given its growth profile, customer segment, and balance sheet.”
Norwegian raised its financial guidance for the next year during its first-quarter earnings report, yet analysts from Goldman Sachs and JPMorgan maintain neutral ratings on the stock. Carnival also upped its yearly forecast in its first-quarter earnings report, but the news wasn’t enough to buoy the stock.
One reason investors haven’t jumped on board with these names is that the stocks aren’t cheap in comparison to the rest of the market, even while some argue they are undervalued.
Carnival and Norwegian are also in debt, but they both have a high level of free cash flow. The sector’s collective free cash flow should reach $9 billion by 2027, which means that these cruise industry titans should be able to pay down debt while still bringing in new business.
So even if you’ve overlooked cruise stocks thus far, you haven’t missed the boat yet.
