It’s been a good year for cruise stocks. The industry, which suffered from shutdowns during the Covid-19 pandemic, is now benefiting from pent-up demand from travellers. That led to some upgrades from Wall Street analysts and new highs for the stock. Carnival and Norwegian Cruise Line hit new 52-week highs on Wednesday, as did Royal Caribbean on Tuesday. “We haven’t seen any signs of weakness in our guests. If anything, we’ve seen an acceleration, not just in terms of demand, but their willingness to pay,” Royal Caribbean CEO Jason Liberty said on 5 month told CNBC. Carnival is up about 94% year to date, Royal Caribbean is up 92% and Norway is up 59%. That’s a dramatic turnaround from last year, when both Royal Caribbean and Carnival were down more than 40%, while Norway was down more than 30%. However, some analysts believe there may be more room to run. Tourism recovers biggest this year The cruise industry was the last of the travel industry to recover from the pandemic. After more than a year of closure during Covid, once ships are allowed to sail again, numerous restrictions keep passengers out. “This is the first full year of real recovery that we’ve seen,” said Truist analyst C. Patrick Scholes, who said the floodgates will open after travel restrictions are lifted in the fall of 2022. “No other sector of the U.S. economy has to comply with these regulations. It’s very, very targeted at cruise lines,” echoed UBS analyst Robin Farley. “Investors are not fully appreciating how much this is affecting demand and how much the lifting of demand is driving demand.” She believes that cruise stocks are poised for the biggest recovery in the travel industry this year. Wall Street has noted “no signs of softening.” Carnival was upgraded on Monday by JPMorgan and Bank of America — sending all three cruise stocks higher. Both companies met with senior executives from Carnival, Norway and Royal Caribbean. “All management teams spoke of continued demand momentum, with no single historical indicator showing signs of weakness,” wrote JPMorgan analyst Matthew Boss. “Importantly, based on our math, management teams are broadly citing today’s Booking curve as sweet spot (historically, ~6-9 months) provides ~85% booking visibility in 2023 and ~25% visibility in 2024.” CCL YTD mountain Carnival YTD Boss upgrades Carnival from Neutral to buy, and raised its price target to $16, implying an upside of about 4% from Tuesday’s close. While he maintains a Neutral rating on Royal Caribbean and Norwegian, he raised his price targets to $103 and $16, respectively. That implies a 7.5% upside for Royal Caribbean, but an almost 18% downside for Norwegian. Bank of America’s Didora cited the stability of the cruise recovery, reduced balance sheet risk and Carnival CEO Josh Weingstei’s streamlining of the Miami-based company for an upgrade from Neutral. to the reason for buying. He also raised his price target to $20, suggesting the stock could rise about 30% from Tuesday’s close. Didora also raised its price target on Royal Caribbean to $95 from $82 and Norway from $17 to $19. Both were roughly in line with Tuesday’s close. He maintained his neutral rating on the stock. “In our view, the cruise industry’s long booking window and strong current demand may make it less vulnerable to a slowdown in leisure consumers than other travel sectors,” Didora said. Meanwhile, UBS analyst Robin Farley’s top pick is Royal Caribbean, though she also has a Buy rating on Carnival. She raised her price target on Royal Caribbean to $103 a share from $91 a share in May. RCL YTD mountain Royal Caribbean YTD For Farley, Royal Caribbean stands out as it has about 64% of its cruises in the Caribbean, which is a strong market. Also, its private island, CocoCay, contributed to company revenue thanks to water parks, zip lining and other activities, she said. Also in May, Argus Research upgraded Royal Caribbean to Buy from Hold. The Wall Street firm noted that Royal Cruises had high occupancy rates in the first quarter, which could lead to stronger-than-expected revenue and earnings this year. Meanwhile, Truist’s Scholes is sticking with a buy rating on Norwegian because of its luxury spending. Consumer spending “continues to explode” With the return of cruise ships, travelers have more options than just booking a hotel room or vacation rental property. In a separate report, Didora said that while consumer spending on lodging appears to have peaked, late-stage recovery sectors such as cruise lines “continue to be hot.” Cruise spending rose 17.3% in May compared to the same month in 2019, the last year before the pandemic, according to credit and debit card data aggregated by Bank of America. While spending remained solid, there was some mild sequential weakness outside the Caribbean, Didora said. Separately, Citi’s proprietary weekly credit card spending data showed a 19% increase in mid-May compared with 2019. “While the growth trend moderates slightly from late 2022/early 2023, it remains largely stable in the 15-25% range for most of March to mid-May,” wrote Citi analyst James Hardiman. The lifting of restrictions in autumn 2022 leads directly into peak season, which begins after the holidays and runs until the end of March, a period often marked by sales promotions. Meanwhile, cruise rates for the industry as a whole rose 9% compared with May 2019, up from 7% year-over-year gains in March and April, according to Citigroup. “Despite the recent strengthening in pricing, cost inflation in the cruise line industry is much lower than in other leisure industries; as a result, we see the relative value of the cruise line group, which is increasingly our favorite as we navigate through an uncertain 2023. subsector,” Hardiman wrote. In fact, cruises are a better deal than usual, says Truist’s Scholes. “Historically, cruise lines have offered better value than land-based accommodation,” he said. Normally it’s discounted at around 10% to 20%, he noted, but now it’s around 50% because of the delayed recovery. NCLH YTD mountain Norwegian year to date This could appeal to inflation-weary Americans who still want to travel but are reining in spending. In a recent Wolfe Research poll, more than 90% of people who took a cruise this year thought it offered better value, analyst Greg Badishkanian wrote in a May 31 note. The Wall Street firm surveyed more than 1,000 US consumers. “We think this should support cruise pricing going forward,” he said. In a May 30 report, Scholes said the booking cancellation rate over the past few months was down 30% from comparable levels in 2019, which also supported future pricing. That means cruise lines won’t drop prices as departure dates get closer and consumers book further out, he said. “Consumers realize that, in addition to limited cruise inventory, they can’t wait to book last minute as airfares are only going to get more expensive and wait longer to book. Reflecting strong booking pace in 2024 and 2025 , the booking window (booking to departure) is currently about 230 days, an increase of nearly 60 days from last fall,” Scholes wrote. Dealing with debt As far as cruise lines are concerned, they themselves are focusing on the billions of dollars in debt they have racked up to survive the pandemic. “You need to have a sustained recovery here,” Scholes said. “If the trajectory we’re seeing today continues, maybe in another two to three years, their balance sheets could come back to where they were,” Boss said. Managements at Royal Caribbean, Norwegian and Carnival all told JPMorgan, Their primary capital allocation focus is to pay down debt, deleverage their balance sheets and avoid any new equity issuance. “Importantly, in terms of free cash flow — we estimate that all three operators will generate positive free cash flow (~$1.7B on average) starting in 2024, increasing to ~$2.0B by 2025, which is Mainly driven by CCL/RCL,” he wrote. More from Wall Street? Investors may now be waiting to see if analysts raise their price targets further after the latest rally. Analysts on Royal Caribbean, Carnival and Norwegian are all overweight on average, according to FactSet. But those stocks have risen and surpassed Wall Street’s average price target. As of Tuesday’s close, analysts on Royal Caribbean had an average price target of $92.77, with a 3% downside potential, according to Fact Set. Carnival sees a 21% downside from its $12.11 average price target, and Norwegian sees a 15% downside from its $16.60 average price target. — CNBC’s Michael Bloom contributed reporting.