Citi turns more bullish on cruise stocks

Investing.com -- Citi analysts are increasingly optimistic about cruise stocks, citing strong growth potential through 2025 and beyond in a note Wednesday.

In a recent deep dive into the cruise industry, Citi noted that while some view the recent rise in cruise stocks as part of a "catch-up trade," the bank believes this growth has more longevity.

Citi is particularly bullish on Norwegian Cruise Line (NYSE: NCLH) Holdings, Royal Caribbean (NYSE: RCL), and Carnival (NYSE: CCL) Corporation, anticipating 20%+ EPS compound annual growth rates (CAGRs) for the next three years, with stock upside of over 40%.

Citi upgraded NCLH from Neutral to Buy, raising its price target to $30.

The analysts believe NCLH's shift in strategy will enable it to capitalize on pricing opportunities without being offset by rising costs. Citi projects a 23% three-year EPS CAGR for NCLH, with the potential for even greater growth if the company sustains its targeted 2.5% yield/cost spread.

Meanwhile, Citi issued a 90-day positive catalyst on RCL as it expects the company to introduce a new long-term plan, potentially dubbed "Vision 20/20," after its upcoming earnings reports.

Citi estimates Royal Caribbean's EPS to hit $20 by 2027, significantly above Street expectations, which could drive substantial earnings revisions and stock gains. The price target for RCL is now set at $253.

"Vision 20/20" could be in the works when RCL lays out its next long-term plan (presumably after 3Q or 4Q) if our 20% EPS CAGR and $20 EPS estimates prove reasonable," said Citi.

While Carnival is seen as the slowest growth story among the three, Citi emphasized its debt-reduction efforts, which should fuel a 24% three-year EPS CAGR. The analysts have set a price target of $28 for CCL.

Citi also highlighted strong web traffic and positive pricing trends, particularly for bookings in 2025, reinforcing their bullish outlook on the sector.

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