Bank of America Analysts Raise Price Targets for Cruise Lines

Bank of America analysts have increased their price targets for cruise line operators Royal Caribbean (NYSE:RCL) and Norwegian Cruise Line (NYSE:NCLH) Holdings ahead of their Q3 earnings reports.

In a note released on Monday, the bank set a new target of $205 for RCL, up from $172, while NCLH's price objective has been raised to $25 from $23.

> "Cruise stocks have had strong performance since early September, with the group averaging an increase of 26% compared to the S&P 500’s 5.1%," noted BofA.

This surge is attributed to solid consumer spending, lower crude prices, and expectations for interest rate cuts. BofA anticipates that RCL and NCLH will reflect Carnival (NYSE:CCL)’s recent positive comments regarding bookings, suggesting that momentum should last into 2025.

Earnings Reports

• RCL is scheduled to report earnings on October 29. BofA holds an optimistic view, projecting results to exceed the company's guidance, with estimates suggesting:
  • Net yield and EPS projections of +7.3% vs. +6.5-7%; $5.10 vs. $4.90-5.00.

While challenges such as Hurricane Milton and a canceled sailing of the Icon (NASDAQ:ICLR) of the Seas may impact Q4 revenue, BofA retains its Q4 net yield forecast of +6.1%.

They also anticipate a potential share buyback announcement during RCL's earnings call, suggesting that debt transactions completed in Q3 might facilitate this move.

• NCLH plans to report on October 31, and BofA expects strong performance, forecasting net yield growth of +7.1% against the company's guidance of +6.1%. Their EPS estimate for NCLH is $0.95, compared to the company’s guidance of $0.92.

Currently, RCL's trading is nearly 12x 2025 EBITDA, and NCLH is at about 9.5x, both at the high end of their historical valuations.

> "It is hard to fight the momentum," BofA commented, believing the valuations are justified given the healthy yield trends and stable macro environment. They continue to maintain a Neutral rating on both stocks.