MS upgrades Carnival, prefers Royal Caribbean amid recession risks, demand drop

Investing.com -- Morgan Stanley flagged the weakest U.S. cruise demand in three years following fresh channel checks, prompting earnings and price target cuts across the sector.

The brokerage Carnival (NYSE: CCL) Corp upgrade to "Equal-weight," but the analysts maintained a cautious tone about the sector while expressing a preference for Royal Caribbean (NYSE: RCL) amid rising macroeconomic uncertainty.

The brokerage said its monthly U.S. travel agent survey showed the sharpest deterioration in cruise sentiment since 2021, with negative feedback outweighing positive 2-to-1.

Most agents cited softer bookings both month-on-month and year-on-year, with customers increasingly booking closer to sailing dates and seeking promotional value.

In response, Morgan Stanley trimmed its 2025 and 2026 net revenue yield forecasts by 50 and 100 basis points, respectively, cutting EPS estimates by 5–10%.

Carnival Corp 's 2026 EPS was reduced by 9%, Royal Caribbean by 5%, and Norwegian Cruise Line (NYSE: NCLH) Holdings by 8%.

Price targets were also lowered, with Carnival Corp now at $21, from $25, Royal Caribbean at $220 from $270, and Norwegian Cruise Line at $21 from $22.

The bank’s "recession playbook" points to further downside risk, with cruise stocks still potentially 40% above bear-case valuations despite being down 32% year-to-date.

We prefer to avoid the cruise sub-sector altogether under a recession scenario, the analysts wrote.

Still, Carnival was upgraded from "Underweight" to "Equal-weight" as much of the negative outlook is now priced in.

RCL remains favored for its higher margins, lower leverage, and greater new product momentum, while Viking is viewed as the safest name due to full bookings through 2025 and minimal onboard revenue reliance.

Morgan Stanley warned that proposed U.S. policy changes, such as a cruise head tax or repeal of Passenger Vessel Services Act protections, could further pressure earnings and valuation multiples.

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