Investing.com -- Goldman Sachs is bullish on the cruise sector, forecasting a strong 2025 and upgrading Norwegian Cruise Line (NYSE:NCLH) Holdings to a Buy rating in a note Tuesday.
The investment bank sees a continuation of 2024's impressive momentum for the cruise industry, which it identifies as the "key winner" among leisure and lodging stocks this year.
Goldman Sachs expects demand to significantly outpace supply, further boosting pricing power in the sector.
"We expect a solid 2025, with another stellar year for cruise," the investment bank states, emphasizing that the cruise industry will benefit from the continued growth in new-to-cruise passengers, projected to increase by "mid teens y/y."
Goldman Sachs explains the growth comes at a time when overall market penetration remains relatively low, providing ample room for expansion.
The firm notes that the "value gap vs. land" for cruises is still wider than historical levels, offering additional upside potential.
As part of its updated analysis, Goldman Sachs highlights the key themes for stock picking, including the positive impact of new private islands and ship launches.
These idiosyncratic drivers are expected to support pricing power for cruise lines, especially as pent-up demand from earlier years fades.
For NCLH specifically, Goldman Sachs raised its price target to $35, a 27% upside, citing accelerating Net Purchase Intent and significant cost savings still to be realized.
The firm projects that NCLH will be able to achieve a "2.5ppt yield to unit cost spread" in 2025, providing potential upside to estimates and narrowing its valuation gap with competitors.
They believe this should "provide upside to estimates and begin to narrow the valuation gap to RCL."
Goldman Sachs' optimistic outlook on the cruise sector is reflected in its continued "Buy" ratings on other major cruise operators, including Carnival Corporation (LON:CCL) and Royal Caribbean (NYSE:RCL).