Maritime cruise company Carnival Corp. (CCL -0.66%) continues to bounce back from the pandemic's impact.
That's the take from JPMorgan Chase analysts, anyway. The bank's research arm upgraded the stock to a rating of overweight earlier this week, citing an uninterrupted recovery in demand. Bank of America followed suit, upgrading Carnival shares to a buy. Both banks also upped their expectations of Carnival rivals Norwegian Cruise Line (NCLH -1.60%) and Royal Caribbean Cruises (RCL 2.27%). The bullish calls hold water, too.
Smart investors, however, will take a step back from these bullish arguments and apply their underpinnings to the entire leisure and travel sector. Online travel agents like Booking Holdings (BKNG 0.53%) and Expedia Group (EXPE -0.40%) are riding the same bullish tide, along with several other related tickers.
Full steam ahead
JPMorgan's explanation is straightforward enough. The firm's latest call on cruise stocks reads:
The twofold takeaway from the "Big 3" [cruise lines' first quarter reports] was (1) bullish tone on current trends (& 1H24 bookings), with zero signs of momentum slowing (& no change in historical lead indicators), as pent-up loyalist demand a year ago transitions to new-to-cruise strength today, and (2) increased balance sheet flexibility w/ ample liquidity for debt paydown (& no plans for equity issuance across the Big 3).
That upgrade follows Royal Caribbean CEO Jason Liberty's recent comment, "We continue to see the ability to raise price in the current market." And in March, Carnival disclosed that its first-quarter future bookings reached record levels.
Data source: Thomson Reuters. Chart by author.
It's not just an isolated tailwind, though. The entire leisure and travel business is having a moment, despite what appears to be an economic headwind.
Take numbers from hotel market research outfit STR. The organization reports worldwide per-room revenue is now higher for 85% of hotels than it was in pre-pandemic 2019, with half of all markets reporting greater occupancy rates now than the occupancy rates seen then.
In this same vein, Booking's CEO Glenn Fogel noted in the company's first-quarter earnings report, "We saw a strong start to the year, with first-quarter room nights and gross bookings reaching our highest quarterly levels ever, and both metrics surpassing our previous expectations."
Data source: Thomson Reuters. Chart by author.
Meanwhile, the International Air Transport Association reports April's air travel reached 90% of pre-pandemic demand, with domestic travel already eclipsing pre-pandemic norms (meaning people are traveling a great deal within their home countries).
And this broad strength matters.
Were it just demand for cruises in a firm economic environment, the brisk demand for cruises might not be built to last. But, given all the demand for leisure travel still pent-up from the COVID-19 pandemic, it's conceivable that interest in travel could remain robust even through a recession. As Expedia CEO Peter Kern explained in an interview with Bloomberg a month ago, "There are still things people can do now that they haven't been able to do in the past three years."
Brace for volatility that's well worth it
Although Carnival, Booking Holdings, and a slew of other travel-related stocks may be confirmed buys now, don't be too quick to plow in. Rather, think strategically.
Carnival's upgrade catapulted the stock higher after logging more than a 40% gain last month. The stock's current price is well above its current consensus target of $11.35. Norwegian Cruise Line shares are also trading above their average target price. If you're going to dive in, at least wait for calmer waters.
Just don't wait too long for any of these names. Carnival and Norwegian Cruise stock may never fully peel back to their respective targets. Rather, the rest of the analyst community may follow JPMorgan's and BofA's lead and start inching their price targets upward. In the meantime, Expedia and Booking Holdings are both still trading below analysts' collective targets, and both are still riding the same bullish wave.
Connect the dots: There's something happening here in defiance of all the economic red flags. The demand for leisure travel is real. The pricing power Royal Caribbean's CEO is touting only bolsters the bullish case.
