With the Caribbean market becoming oversaturated and the potential resolution of the Ukraine war, Europe is set to become a crucial battleground for the cruise industry in 2026. This shift could benefit operators like Carnival (CCL.US) and Viking (VIK.US), positioning them ahead of competitors.
David Katz of Jefferies noted, "We believe operators with significant exposure to Europe will outperform those primarily focused on the Caribbean." While maintaining an optimistic outlook on the broader cruise sector, Katz highlighted that select companies will stand out in 2026 due to favorable geopolitical developments and superior operational execution.
Carnival remains Katz's top pick in the leisure sector, citing its improving business quality and minimal capacity growth. He reiterated a "Buy" rating on Carnival, stating, "We view the company's disciplined capacity growth as prudent, allowing it to focus on per-ship pricing through targeted marketing spend. Additionally, Carnival appears significantly undervalued relative to peers and its own historical levels."
Despite its strong presence in the Caribbean, Carnival owns Europe-focused brands, including historical ties to St. Petersburg, Russia—a top pre-war cruise destination—which could rebound post-Ukraine conflict.
Similarly, Viking Holdings is expected to benefit from its Europe-centric itineraries and premium consumer positioning in 2026. Katz projects Viking will "return at least $500 million in capital by late 2027 while maintaining leverage below 1.0x." He upgraded Viking from "Neutral" to "Buy," raising the price target by 33% to $80, citing strong business quality and growth trajectory.
For fiscal 2026, Katz forecasts Viking will achieve an "industry-leading" 5% net yield growth, followed by 4% in 2027, with double-digit adjusted EBITDA growth over the same period.
Meanwhile, Norwegian Cruise Line Holdings' decision to redeploy 10% of its Europe-based fleet to the Caribbean appears ill-timed, potentially disrupting bookings and pressuring earnings as it resorts to short-term discounts to meet occupancy targets. Additionally, Norwegian's shift toward targeting "upscale families" introduces further pricing pressure. Despite commendable cost-control efforts, Katz expects slower net yield growth next year, "diminishing near-term leverage improvement expectations." Consequently, he downgraded Norwegian from "Buy" to "Neutral," cutting the price target by 23% to $20.
Royal Caribbean retained its "Neutral" rating, as it remains a "high-quality operator" with strong management and business models. However, robust demand from land-based assets may be offset by anticipated pricing softness in 2026, compounded by Norwegian’s Caribbean shift. For 2027, Katz projects stronger growth as Royal Caribbean’s land-based ventures—such as its beach clubs in the Bahamas, Santorini, and Cozumel—reach full operation, while its technological and innovative edge sustains long-term competitiveness.
On Monday, shares of Carnival, Viking, Norwegian, and Royal Caribbean all rose approximately 3%, with Royal Caribbean slightly outperforming.
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