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Investing.com -- Cruise operators are set to outpace broader travel sector gains thanks to strong value offerings, rising margins, and long-term investment, according to TD Cowen.
The firm initiated coverage on Royal Caribbean (NYSE:RCL), Carnival (NYSE:CCL), and Norwegian Cruise Line (NYSE:NCLH) Holdings with Buy ratings and added NCLH to its Top Picks list.
“Cruise offers a unique, accessible international travel experience, with strong value proposition across price points,” TD Cowen said, projecting a 7% industry revenue CAGR through 2029.
Analysts noted that cruise demand has proven resilient over two decades, including through recession and COVID-19.
Revenue rose from about $21 billion in 2005 to $67 billion in 2024, and is expected to reach $95 billion by 2029.
“The industry is trending up ~7.5% ex-FX this year,” TD Cowen said, supported by new ship launches and investment in private destinations.
The average cruise fare of $160 per day, including international travel, meals, and amenities, is said to compare favourably with the U.S. hotel average of $120 per night for room-only bookings.
“This has driven consistent above-industry long-term growth rates, which we believe is correlated with ongoing growth in international travel,” TD Cowen said.
Margins and returns are also improving. “RCL strength looks to be driving group EBIT margins to ~20% in 2025E, a 20-year high,” analysts wrote, adding they expect margins to hit 24% in 2029.
Group return on invested capital (ROIC) is forecast to climb from below 10% in 2019 to 20% by 2029.
TD Cowen called NCLH a “value play,” CCL the industry leader with margin opportunity, and RCL a standout on profitability. “Cruise lines [are] underappreciated travel share gainers,” the firm concluded.