Carnival Cruise is the IBD Stock Of The Day for Wednesday. Carnival stock broke out as cruise lines rallied on strong momentum, with most set to report Q3 earnings this month.
Citigroup on Wednesday said its data analysis suggests the recent growth and rally in the cruise space "has real legs" into 2025 and beyond. The firm expects Carnival Cruise "should be able to generate substantial yield growth," based on recent trends and the contribution of its land-based assets like Celebration Key. Citi added that Carnival's debt and interest reduction should offset any sales growth sacrifices.
The firm lifted its price target on Carnival Cruise stock to 28 from 25 and kept a buy rating on the shares.
Citi also upgraded Norwegian Cruise Line Holdings and opened a "90-day positive catalyst watch" for Royal Caribbean, as part of the earnings preview for the industry.
The firm upgraded Norwegian Cruise Line to buy from neutral and raised its price target to 30, up from 20, citing its recent strategy shift. Norwegian Cruise in May announced its new "Charting the Course" strategy, which includes investment initiatives in the company culture and employees, guest product offerings, Norwegian's growth platform, as well as optimizing performance.
The firm estimates that Norwegian could achieve 23% annual earnings growth over the next three years. That could stretch closer to 30% if the cruise operator can sustain its 2.5% yield/cost spread. Either outcome equates to "big earnings upside and multiple expansion," opportunities Citi wrote.
The firm also expects Royal Caribbean to announce a long-term plan within the next two quarters, likely in conjunction with its Q3 or Q4 report. Citi said it doesn't see any reason that the cruise operator can't achieve $20 per share in earnings.
"While this would be a bold target at first blush, we do not believe that the building blocks are overly optimistic," Citi wrote. Citi hiked its price target on Royal Caribbean stock to $253 from $204 and kept a buy rating on the shares.
Carnival Cruise Earnings
The Citi note comes after Carnival Cruise reported Q3 results on Sept. 30, which kicked off earnings for the group.
Carnival earnings per share jumped 48% to $1.27 adjusted. FactSet expected adjusted EPS of $1.17. Revenue increased 15% to a record $7.89 billion, topping views for $7.82 billion.
The cruise line's revenue growth has slowed over the last seven quarters after rebounding following the coronavirus pandemic.
Carnival also noted record operating income of $2.2 billion, up $554 million from last year.
CEO Josh Weinstein said unit operating income increased 26% due to operational improvements and high-margin, same-ship yield growth. Carnival's advanced booked position for 2025 is already ahead of 2024's record, with higher prices than last year. Weinstein added that Carnival is well-positioned with a stronger base of business for 2025 and set for a record start to 2026.
"With nearly half of 2025 booked and less inventory remaining for sale than the prior year, we are leveraging strong demand to achieve record ticket pricing," Weinstein said in the release. "Likewise, 2026 is off to an unprecedented start achieving record booking volumes in the last three months."
The cruise giant expects net yields to increase about 10.4% compared to last year, up from its June guidance of 10.25% growth. Carnival Cruise sees adjusted earnings before interest, taxes, depreciation and amortization increasing around 40% to about $6 billion, increasing from its Q2 guidance for $5.83 billion. FactSet expects full-year EBITDA of $5.92 billion.
For Q4, Carnival expects net yields up 5% with a 20% increase in adjusted EBITDA to $1.14 billion. Analysts predict Q4 EBITDA of $1.16 billion.
Hurricane Milton Impact
Meanwhile, Hurricane Milton moved toward Florida's west coast on Wednesday. Still ranked as a category 5 storm, meteorologists expect it will inflict significant damage in the Tampa area after it makes landfall. Tampa's usually busy commercial port was closed as of Wednesday morning.
All three cruise line industry leaders — Royal Caribbean, Carnival and Norwegian Cruise Line — are based in Miami, which is on Florida's east coast and well south of Milton's projected track.
Royal Caribbean on Tuesday announced it changed itineraries for eight ships to avoid the storm.
Carnival adjusted the itineraries for seven of its ships in the storm zone.
Multiple theme parks in Florida also altered or halted operations in anticipation of the hurricane, including Disney's Walt Disney World, SeaWorld, Legoland and Universal Orlando.
Carnival, Cruise Stocks Rally
Carnival Cruise stock vaulted 7% Wednesday to 20.20, clearing a 19.09 buy point for a cup-with-handle base.
Shares extended above the buy zone on the move, which stretches to 20.04. Investors could wait to see if Carnival pulls back into buy range.
CCL stock has been stuck below a ceiling near 20 over the last 15 months. Carnival Cruise shares climbed 8.9% in 2024 through Tuesday.
The relative strength line cleared consolidation highs to its best levels since January. The RS line, the blue line in the chart provided, tracks a stock's performance vs. the S&P 500.
Norwegian Cruise shares rallied nearly 11% Wednesday, now significantly extended from a 20.65 buy point for a double-bottom base. Shares had moved back above that entry in the prior session. NCLH has been mired in consolidation for 15 months, but the stock jumped 15% this year.
Viking Holdings jumped 2.6% Wednesday to clear a 37.25 buy point for an 11-week consolidation. VIK stock is up 7.5% in 2024 as of Oct. 8.
Royal Caribbean stock popped 5.3% Wednesday to a record high, adding to its 49% gain this year through Wednesday's close. RCL stock is extended after a September breakout.
You can follow Harrison Miller for more stock news and updates on X/Twitter @IBD_Harrison
