Stifel: 'More Upside To Come' For Cruise Industry

Cruise ship stocks have entered a multi-year cycle in which they will outperform the larger stock market, an analyst said Thursday.

Stifel's Steven M. Wieczynski reiterated Buy ratings on Carnival Corporation CCL with a $54 target and on Royal Caribbean Cruises Ltd RCL with a target of $96.

Although cruise stocks beat the market in 2014, results were hurt by over-capacity in the Caribbean Basin.

The industry is redeploying ships outside the Caribbean region and has slowed the pace of ship-building.

An obvious tailwind is blowing on profits in the form of lower energy costs that should more than offset troubles stemming from a strong dollar, Wieczynski said.

Lastly, the analyst said demand is growing in North America and "firming" in Europe.

Carnival could post annual compounded earnings growth of more than 25 percent during the period 2014 to 2017, according to Wieczynski.

"The cloud hovering over Carnival's story continues to dissipate," Wieczynski, perhaps referring to an uncanny series of at-sea mishaps that plagued the company in recent years.

Wieczynski also cited Carnival's ongoing capital reinvestment as well as improving trends in customers' on-board spending.

Meanwhile, Royal Caribbean's stated target of doubling its earnings per share between 2014 and 2017 "is actually conservative," the analyst said.

Although Royal's shares are up 64 percent in the past 12 months, Wieczynski said they're "undervalued."

The analyst acknowledged that his view "may be hard to believe," but added "there is more upside potential to come."