The shares of U.S. Cruise Operators, including Norwegian Cruise Line Holdings surged during the midday session on Wednesday, as brokerage Citi becomes bullish about the long-term prospects for these companies.

Norwegian Cruise shares rose as high as 11% after Citi upgraded them to "buy" status from "neutral", while Royal Caribbean Group shares reached a new all-time record of $263, up as much 5%. Carnival Corp rose nearly 9%.

The cruise industry has seen strong results in 2018, thanks to a solid demand for sea-based holidays and increased ticket prices. Americans are spending more on experiences and services than discretionary items, which has led to record bookings for cruises.

Citi, using web traffic data, said that September cruise traffic was one of the best ever recorded. Pricing data is also positive for 2025 and beyond.

Citi analyst James Hardiman stated that Norwegian's strategy shift from quality at any cost to a more balancing yield/cost relationship gave him confidence in the fact that its considerable pricing power, and increased focus on costs "can't but bear fruit".

The brokerage increased the price target on Norwegian Cruise from $20 to $30, Royal Caribbean from $204 to $253, and Carnival from $3 to $28.

Citi stated that both Royal Caribbean and Norwegian Cruise will grow their capacity at an annual rate of 6% over the next three year, which would be a major contributor to revenue growth.

Royal Caribbean, Norwegian Cruise, and Carnival stocks are up by 50%, 14%, and 9% respectively so far this year.

Norwegian Cruise's price-to earnings ratio, which is a standard benchmark used to value stocks, for the next year was 11.05 compared with 13.99 for Royal Caribbean and 11:31 for Carnival. (Reporting from Savyata J. Kanatt and Neil J. Kanatt, Bengaluru. Editing by Alan Barona.)

(source: Reuters)