Cruise line stocks: Barclays says fears are overdone

Investing.com -- Barclays analysts believe the recent selloff in cruise line stocks is overdone, arguing that the market is "implying Cruise Lines' pricing will unravel" when the reality is far more stable.

“We think fears are overdone,” said the bank.

Cruise stocks have dropped "23% on average over the last month, vs. SPX -7%," as investors worry about macro volatility and economic uncertainty.

However, Barclays analysts think the implied "5% impact to yields" is unlikely due to three key factors:

1. 
   

   "The still significant pricing discount to land-based vacations, which should act as a buffer to demand."

   
   


2. 
   

   "Decelerating/modest supply growth."

   
   


3. 
   

   "A more rational industry pricing structure."

   
   

Barclays outlines various scenarios for cruise line stocks, with a "bad," "worse," and "worst" case modeling 2.5%/5.0%/10% hits to yields, respectively.

Even in a severe downturn, analysts believe the industry can "meaningfully cushion" the impact. Their base case assumes only a "-2.5% hit," which would result in "16%/23%/32% upside for RCL/CCL/NCLH, respectively."

The firm also highlights "pricing power for the cruise industry is stronger today than ever before," due to a wider discount to land-based vacations, improved pricing discipline, and a more forward-looking approach to booking onboard spending.

While recent uncertainty has impacted bookings, Barclays does not expect major pricing adjustments yet, stating "even if ticket demand began softening as early as February, we don't think operators would have moved prices yet."

The firm’s preferred stocks in the sector are Royal Caribbean (NYSE: RCL) and Carnival (NYSE: CCL), which benefit from "drive-to mix and most attractive/inherent value propositions to the consumer."

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