Large cruise vessels are experiencing a resurgence

Goldman Sachs Group Inc. believes that despite their success last year, cruise operators still have room for improvement. Carnival Corp. and Royal Caribbean Cruises Ltd. are recommended by analyst Lizzie Dove, who believes that the bull market for cruise stocks has peaked. She points out that there have been fundamental changes in the industry that have resulted in better business models and pricing trends that could further benefit these companies.

The launch of mega ships, such as the Royal Caribbean Sea icon, is expected to continue driving demand for cruises along with premium pricing, leading to a better return profile for the industry. Dove predicts that these luxury ships will create a “halo effect” through their advertising campaigns and amenities, attracting more customers. She also sees continued pricing power and positive estimate revisions as well as investments in land resort destinations like Carnival’s Celebration Key as strong catalysts for cruise lines.

Dove highlights that Carnival has the cheapest valuation among the three companies analyzed and sees their conservative forecasts as an opportunity for major recovery in utilization. She also predicts that future investments in private island destinations could be a positive catalyst for the industry. While she recognizes that Carnival may deserve a discount compared to competitors due to higher leverage and execution risk, she believes that the current level of discount is unwarranted.

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