MW Why cruise stocks are a buy now, according to this analyst

By Tomi Kilgore

Cruise operators' higher-income customers are showing no worries about all the "noise" in the macroeconomic backdrop

If you have money and want to take a cruise vacation, you don't seem to care much about all the "noise" over how tariffs could hurt the economy, or the selloff on Wall Street.

At least that's what cruise operators said at a conference hosted by J.P. Morgan last week.

Investors seemed to assume cruise stocks, which had been hot the past couple of years, would suffer like those of many other consumer-facing companies have, following warnings of a pullback in discretionary spending, as consumers waited to see how the Trump administration's policies would play out.

Airlines warned last week they were seeing reduced leisure-travel demand, so it appeared to make sense that cruise operators would as well.

Read: Trump's tariffs worry companies. Here's what they're saying about the uncertainty.

Also read: Will cruise operators actually have to pay U.S. taxes? The prospect is hurting their stocks.

Shares of Norwegian Cruise Line Holdings Ltd. $(NCLH)$ have tumbled 30% amid a seven-week losing streak through Friday, the longest such streak since the eight-week stretch that ended March 20, 2020 - at the height of the COVID-19 pandemic panic. And Royal Caribbean Group's stock $(RCL)$ has dropped 23% from its Jan. 30 record close of $274.79.

In Monday's premarket, Norwegian's stock rallied 4.7% and Royal shares gained 1.5%. Carnival Corp.'s stock $(CCL)$ was up 1%.

J.P. Morgan analyst Matt Boss raised his rating on Norwegian's stock to overweight from neutral, as his $30 price target implied a 51% upside from Friday's close. He reiterated his overweight rating on Royal's stock, with his $298 target implying about 41% upside.

Boss said the message from Norwegian's management was that there has been "zero detectable change" in demand despite all the "noise" in the macro backdrop.

That includes "no change in booking curves to indicate irregular patterns, no cracks in onboard spend, including in high-discretionary purchase categories of the spa and casino, and no change in cancellation rates," Boss said in a note to clients.

For Royal Caribbean, management said there was no change from the "extremely bullish" outlook the company provided at its investor day held less than two weeks ago.

There are a few reasons cruise operators say they are insulated from the macro noise.

For one, their higher-income customers are more resilient to the uncertainties affecting other consumers. The average customer for Norwegian has a household income of more than $200,000 a year, and for Royal Caribbean, the household income is more than $125,000.

Norwegian said its vacations are 30% to 35% cheaper than land-based alternatives, for those worried about spending, while Royal said their cruises are 20% to 25% cheaper.

Don't miss: Royal Caribbean CEO explains why cruises are so popular.

There's also the fact that it's much easier to get customers now, as Royal said nine out of 10 adults are currently open to taking a cruise vacation, compared with six to seven out of 10 adults before the pandemic.

And cruises still represent a small percentage - about 3% to 4% - of the overall vacation market, so Boss believes that still leaves plenty of room for growth.

-Tomi Kilgore

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March 17, 2025 08:53 ET (12:53 GMT)

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