After an extended port of call, it might be anchors aweigh time for investors in cruise stocks, in keeping with Citigroup. The cruise industry took a beating as countries closed borders and travelers stayed home during Covid-19 lockdowns. But tides have shifted as borders reopen, pent up demand surges and testing requirements ease, meaning 2023 could mark a “banner 12 months” for the industry, the Wall Street firm said. The backdrop is improving a lot that analyst James Hardiman said in a Monday note to clients that “cruise stocks as a gaggle have graduated from ‘proxy trades’ to driving long-term investment narratives.” “Unlike most of our coverage, the post-pandemic momentum of the cruise space clearly outweighs potential macro headwinds in 2023, with budding Asian and European narratives constructing into 2024,” Hardiman said. Hardiman’s reasoning for the sentiment shift stems from conversations with travel agents and web traffic trends that indicate strong demand. Some data points also suggest 2023 sailings will likely supersede 2019 levels. Hardiman named Royal Caribbean his top pick, but Norwegian and Carnival also offer decent upside. Royal Caribbean is favored due to its solid track record of maintaining costs, and offers the very best risk-reward opportunity inside the group. “RCL stays our favourite name within the group given probably the most compelling balance of pricing and value controls, while also carrying forward the smallest amount of earnings dilution (debt and equity) from the pandemic layup of the fleet,” Hardiman wrote. Up to now this 12 months, Royal Caribbean shares are off to a solid start, up greater than 41% after tumbling about 36% in 2022. Citi reestablished a price goal on RCL shares of $80, implying 19% upside from Wednesday’s close. Citi rates the stock a high risk buy. Hardiman retained a neutral but high risk rating on Carnival, lifting his price goal to $13 from $9 a share. That means about 15% upside from Wednesday’s close. He maintained the identical rating and an $18 price goal on Norwegian. “Norwegian operates highly regarded premium brands within the cruise space, and so we have now little doubt that this customer will rebound nicely as travel restrictions ease and virus concerns subside,” he wrote. — CNBC’s Michael Bloom contributed reporting
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