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Investing.com -- BNP Paribas Exane has launched coverage of the four major U.S. cruise operators, citing secular tailwinds and company-driven initiatives as key growth drivers.
The firm is Outperform on Carnival (NYSE:CCL), Royal Caribbean (NYSE:RCL), and Viking, while initiating Norwegian Cruise Line (NYSE:NCLH) at Neutral.
"Growth prospects are setting sail to new horizons," said BNP Paribas (OTC:BNPQY) Exane, noting that cruise vacations remain an attractive value proposition, typically 20-25% cheaper than land-based alternatives.
The firm also highlighted demographic trends, including older consumers with more disposable income, as a supportive factor for long-term growth.
The firm assigned Royal Caribbean Cruises a $262 target. BNP Paribas Exane describes Royal Caribbean as the "best-in-class" operator, crediting its early adoption of private island strategies like CocoCay.
With three new islands and multiple ships launching over the next three years, the firm expects "meaningful Net Yield growth" and believes the company’s long-term earnings targets could be conservative.
Carnival Corp was given a $26 target. The firm’s bullish stance on Carnival is driven by the upcoming Celebration Key private island, which could boost visitor traffic and drive pricing power.
BNP Paribas Exane sees free cash flow accelerating, with $2-4 billion in annual FCF generation potentially driving further debt reduction.
Viking Holdings was assigned a $47 target. BNP Paribas Exane believes Viking’s premium brand and high return on capital employed (ROCE) make it a standout in the cruise sector.
The firm expects ROCE to reach 50%+ by 2025, supporting its premium valuation multiple of 13.5x EBITDA.
Norwegian Cruise Line Holdings was given a $21 target. The firm said that despite cost controls and pricing strength, it remains cautious on Norwegian due to its lower exposure to private islands and muted free cash flow.
"It might take time to unlock multiple expansion," the firm stated.