Investors frequently get to see routine analyst upgrades and downgrades after earnings and other key developments. Finding the “strategic” analyst calls looking for outsized gains based on a coming event (or events) is something else. And ahead of earnings after, that’s even more daring. Cruise line stocks surged on October 9 after Citigroup issued strategic upgrades.
Upgrading a cruise ahead of “the storm of the century” might seem odd, but the valuations are cheap and the growth and multiple expansion being projected might stand out to strategic investors.
Oggonomics always reminds investors and its readers that no single analyst report should ever be the sole basis to buy or sell a stock. That decision to buy or sell (or hold or short sell) is up to each investor and the decision should be made with a financial advisor.
ROYAL CARIBBEAN
Citi’s 90-day positive catalyst watch call in Royal Caribbean Cruises Ltd. (NYSE: RCL) with the firm reiterating its Buy rating and raising its price target to $253 from $204. This would represent about 38% upside from the prior $183.39 closing price if Citi’s call comes to fruition. This is not only a strategic call, it appears to be the street-high price target and handily above the $184.78 consensus price target shown on FinViz.
Citi is expecting Royal Caribbean to update its long-term plans over the coming two quarters. And with the optimism expected, Citi is projecting that RCL should be able to generate $20 in earnings per share — valuing it at less than 10-times expected earnings.
Royal Caribbean’s stock was up over 4% at $191.54 on Wednesday after the news, hitting new 52-week highs. That’s also about $60 above the prior all-time highs that had been seen before the Covid pandemic gutted the cruise industry.
NORWEGIAN
Norwegian Cruise Line Holdings Ltd. (NYSE: NCLH) was also surging after Citi raised its rating to Buy from Hold and the firm lifted its price target up to $30 from $20. That would represent upside of nearly 50% from the prior day’s $20.80 closing price. FinViz shows a consensus analyst target price of $22.44.
This upgrade was also catalyst driven as it cited the “Charting the Course” initiative announced in May. That includes deeper investments, targeting the company’s culture and employees, more offerings to cruise guests, and increasing optimization (lifting per guest sales). And with a $2.45 EPS target for 2026, that would give a forward valuation of 8.5-times expected earnings. The firm is calling for earnings upside and multiple expansion to drive that $30 target.
Shares of Norwegian were up over 10.5% at $23.00 on Wednesday after the call. That’s also above its prior 52-week highs but it’s still only about half of its pre-2020 highs before the pandemic.
ALL AROUND
Strategic investors should keep in mind that much of this recovery rally has been seen. Norwegian shares are up 15% YTD and Royal Caribbean shares are up 45% YTD. These calls are facilitating chart breakouts that might also stand out to other strategic and technical investors.
The bet here is one that consumers are going to continue to buy experiences and services more than they are to buy endless discretionary goods. Cruises have been full and pricing has been very firm and far less promotional than even a year or two ago. Citi expects strong pricing trends to continue into 2025.
The news of this upgrade was strong enough that Carnival Corp. (NYSE: CCL) rose 7% to $20.23 with the group. That was another one hitting 52-week highs, and it is still down about 60% from the pre-pandemic 2020 high.
