The past few years of inflation have really wreaked havoc on leisure plays like RCL, CCL, and MGM. Undoubtedly, when basic costs of living (think housing and food) are at ground zero of the inflationary boom, it can be tough to save up for that getaway experience, whether it be a cruise or a simple trip out to Las Vegas.
As easy as it is to delay such vacation experiences, I think that the end of inflation (or at least the beginning of the end) could mark the start of a return to leisure.
Various parts of the economy are still holding up quite well (there is still no recession in the books). And though we’re certainly not out of the woods quite yet, as certain Federal Reserve members contemplate fewer rate hikes due to a robust U.S. economy, one can’t help but imagine consumers finding a way to chug along. They’re beginning to be more selective with how they spend their discretionary cash.
In any case, let’s harness the power of TipRanks’ Comparison Tool to tune into three leisure stocks highly favored by Wall Street right now.
Royal Caribbean Cruise (NYSE:RCL)
Royal Caribbean Cruise stock has been cruising higher over the past year, leaving its industry rivals to tread water. At writing, RCL stock is flirting with new all-time highs after surging more than 300% from the dark depths of 2022.
While Royal Caribbean has been enjoying the ascent, its peers are still struggling to sustain any sort of positive momentum. Just have a look at the stock charts of the major cruise lines and you’ll see the story that’s unfolding. Royal seems well-equipped to take market share over the foreseeable future.
Undoubtedly, the premier nature (it doesn’t get classier than Royal) of the firm’s cruise lines is paying off big-time as it cashes in on robust booking demand for the most leisurely of travels. With distinct advantages over peers (fabulous new ships, like Silver Nova, have been setting sail, with Utopia of the Seas to do so this summer) and no signs of demand reversal, I have to stay bullish on RCL stock.
Why settle for an older ship at a lower price when you have profound innovations packed in the latest and greatest ships that offer unmatched experiences for those with a taste for luxury?
Royal Caribbean shows that sometimes you’ve got to spend money to make money. Not only that, but RCL could gain market share and have what it takes to pad its long-term margins as more cruisers look to crave (and pay up for) the very best.
What Is the Price Target for RCL Stock?
RCL stock is a Strong Buy, according to analysts, with 10 Buys and two Holds assigned in the past three months. The average RCL stock price target of $150.67 implies 11.6% upside potential.
Carnival Cruise Lines (NYSE:CCL)
For deep-value investors seeking to bet on the underdog, Carnival looks to be the more intriguing comeback play. Undoubtedly, the tides have been turned in favor of Royal Caribbean in recent quarters, but Carnival has been no slouch, with an impressive 53% gain posted over the past year.
At this juncture, it’s unclear how Carnival can gain share over its high-end rival. Perhaps a broadening out of a cruising bull market would benefit Carnival. In any case, I’m staying bullish on CCL stock, primarily due to the modest valuation and its favorable positioning with the budget-conscious family crowd.
Like Royal, Carnival has benefited from similar industry dynamics (record bookings and improving margins). And though Carnival has new ships (Carnival Jubilee) of its own to get cruisers excited and ready to book, it also has to balance fleet expansion investments with debt reduction plans. It’s a fine balance, but it’s one that could allow CCL stock to sail higher as the industry continues with its recovery.
One thing to note is that the Baltimore Bridge collapse is expected to hit adjusted earnings by $10 million. In any case, the disaster’s impact on the bottom line seems mostly baked in right here.
What Is the Price Target for CCL Stock?
CCL stock is a Strong Buy, according to analysts, with 14 Buys and one Hold assigned in the past three months. The average CCL stock price target of $22.75 implies 51.1% upside potential.
MGM Resorts (NYSE:MGM)
Apart from the cruisers, MGM Resorts looks like an intriguing option for investors looking to play a leisure stock comeback at a dirt-cheap multiple. At writing, shares of the iconic Vegas staple trade at just 14.9 times trailing price-to-earnings, well below the resorts & casinos industry average of 20.7 times. Just last week, Mizuho (NYSE:MFG) stepped forward, starting MGM stock with a Buy rating, saying the stock is undervalued.
Indeed, as consumer discretionary income bounces back, MGM is a prime candidate to benefit. As such, I’m staying bullish on the stock as we head into the summer months. “We see a compelling FCF and stock buyback value creation path, whereby MGM could theoretically buy $4-5 billion of stock over the next five years,” said Mizuho’s Ben Chaiken.
Undoubtedly, MGM may not be a growth darling, but it’s certainly a cash cow — one that could get fatter as demand for leisurely travel starts to pick up.
Given the rise in digital gaming, which allows gamblers to place bets from the comfort of their own homes, one can’t help but imagine that more people have developed an appetite for rolling the dice. That doesn’t just entail a rise in digital gaming but possibly more trips to Vegas. Either way, MGM stands out as a firm worth betting on as the economy heats up.
What Is the Price Target for MGM Stock?
MGM stock is a Strong Buy, according to analysts, with 12 Buys and two Holds assigned in the past three months. The average MGM stock price target of $56.46 implies 23.1% upside potential.
The Takeaway
Leisure stocks may be ready to rip higher as the American economy continues exhibiting resilience. From the cruise lines to the Vegas icons, a strong U.S. economy can act as a huge tide that lifts all ships in the scene. Of the trio of Strong Buys, Wall Street seems to like CCL stock the most, with ~51% in gains expected over the year ahead.
