During the two years of the Covid pandemic, cruise lines lost approximately 80% of their pre-pandemic market capitalization, according to Redburn Atlantic. But now a surge in demand is prompting a rapid recovery, leading the firm to see a promising investment opportunity. Analyst Alex Brignall upgraded Carnival and Norwegian Cruise Line to buy on Thursday, lifting his price target on Carnival shares to $23, implying 48% potential upside, and Norwegian to $25, suggesting shares could rally 50%. “Today, the sector has exited intensive care, and the fundamental investment case, of strong secular growth and margin opportunity, is clear,” Brignall wrote in a report. Strong travel demand, particularly in leisure travel, is at the core of the improved pricing outlook for the cruise industry, according to Brignall. “The cruise industry, with an average guest age of almost 50, will enjoy a turbocharged version of this demand strength as the U.S. over-65 population is set to grow at more than 2% per year until 2030, four times the overall population growth rate of the U.S.,” the report noted. Retirees are benefiting from high interest rates, which are boosting the interest on their savings, said Brignall. Cruise pricing has lagged leisure hotels, which the analyst attributed to longer booking windows and travel restraints. According to the analyst, the discount has risen from 20% pre-pandemic to almost 40% in 2023. “Notably, the 20% historical discount was the same in 2006 as it was in 2019, so while the cruise lines have been unable to close the gap so far, it has not been widening,” Brignall said. “While we are cautious on hotel rates, we expect to see the cruise lines close the gap back to almost 20% over the next five years, leading to 3% annual yield growth from 2023 to 2027, supported by helpful secular trends,” the analyst noted. Norwegian has faced partcular challenges thanks to its status as a high-end cruise line with an older customer base, and “more complex, longer cruise product.” As a result, the company has been hurt more than other cruise lines by sailing restrictions, but Brignall expects that headwind to get better soon. Meanwhile, Carnival has had a more protracted recovery due to a slower reopening in Europe, where it has more exposure than peers. The company has also restarted a “multi-brand, multi-language, decentralized business” under CEO Josh Weinstein, who took charge in 2022. Shares of Carnival and Norwegian were up 4% in early trading Thursday. Both shares have surged this year thanks to the continued recovery in leisure travel, with Carnival climbing 93% and Norwegian by 39%. —CNBC’s Michael Bloom contributed to this report.