Royal Caribbean (RCL) Up 30% in 6 Months: Is it Buy Time Yet?
Royal Caribbean Cruises Ltd. RCL, a Miami-based cruise company, has rallied 29.7% in the past six months compared with the Zacks Leisure and Recreation Services industry, Zacks Consumer Discretionary sector and the S&P 500 Index. During the same time frame, the S&P 500 Index rose 10.3%, while the industry and the sector moved down 0.3% and 2.9%, respectively.
Price Performance
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RCL’s prospects are benefiting from demand strength across its diversified fleet offerings and all key itineraries. Increasing demand trends and favorable pricing actions have led to the pre-fulfillment of its Trifecta goals, which were targeted for 2025. Also, these tailwinds helped the firm boost shareholders’ value by reinstating dividend payments.
Its trailing 12-month return on equity (ROE) is indicative of its growth potential. ROE for the trailing 12 months is 52.5%, much higher than the industry’s 0.2%. This reflects the company’s efficient usage of shareholders’ funds.
Technical indicators suggest continued strong performance for RCL. From the graphical representation given below, it can be observed that the 50-day simple moving average (SMA) continues to read higher than the 200-day SMA, signaling a bullish trend. The technical strength underscores positive market sentiment and confidence in RCL's financial health and prospects.
Trading Above 200-Day SMA
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Factors Driving Growth
Booking Trends: Since the beginning of 2024, Royal Caribbean has been witnessing solid booking volumes across all key itineraries, with a rise in consumer spending onboard and pre-cruise purchases. Early booking patterns and heightened onboard spending reflect active consumer engagement, positioning the company favorably to outperform the broader travel industry and attract new clients.
The company’s North American consumers (representing about 80% of sourcing in 2024) continue to drive strong yield growth, with a strong performance in Caribbean, European and Alaska summer itineraries. The company’s flexible sourcing model, combined with the global appeal of its brand and its leadership in various market segments, enables it to capture high-quality demand effectively.
Fleet Expansion Initiatives: The company focuses on new innovative ships and onboard experiences to differentiate its offering as well as deliver superior yields and margins. Recently, it launched Silver Ray, which redefines the ultra-luxury cruise segment and attracts a younger audience. The Utopia of the Seas was also introduced to attract younger travelers and cater to short-term cruises. RCL anticipates the new vessel to enhance conversion rates for longer trips and drive sales in upcoming periods.
The vessels mentioned above enhance vacation experiences and also contribute to yield improvements and overall profitability. Upcoming expansions include Celebrity Cruises’ Celebrity Excel, set to launch in late 2025 and Royal Caribbean’s Star of the Seas, debuting in mid-2025. The third Icon class ship is planned for 2026 and the seventh Oasis-class ship is scheduled for 2028.
Early Achievement of Trifecta Goals: In November 2022, Royal Caribbean announced its Trifecta goals, which included at least $100 adjusted EBITDA per available passenger cruise days (APCD), $10 adjusted earnings per share and return on invested capital (ROIC) of 13% and above. These goals were aimed to be achieved by 2025. However, the targets were fulfilled 18 months ahead of schedule on a trailing 12-month basis, given the exceptional demand trends for RCL’s product offerings.
As of second-quarter 2024, the company delivered $113 adjusted EBITDA per APCD, mid-teens ROIC and adjusted EPS of $10.08 on a trailing 12-month basis.
Reinstating Quarterly Dividend: Owing to the robust booking trends, on the back of its diversified fleet and product offerings, Royal Caribbean is witnessing impressive revenue growth. Thanks to this current backdrop, the company could achieve its Trifecta goals earlier than scheduled and stand in a strong financial position. Given the strong balance sheet position, the company was able to expand its capital allocation and offer shareholder value.
During the second quarter, RCL announced reinstating a quarterly dividend of $0.40 per share, payable on Oct 11, 2024, to shareholders of record at the close of business on Sep 20, 2024. Such an announcement is most likely to have induced optimism amongst the investors, thus underlying its growth aspects.
RCL Trading at a Discount
The company is currently valued at a discount compared with its industry on a forward 12-month price-to-earnings (P/E) ratio basis. RCL’s forward 12-month P/E ratio stands at 12.49, lower than the industry’s ratio of 15.29. This indicates that despite the recent stock price increase in the past six months, it remains an attractive option for investors looking for a discounted entry point.
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Estimate Revision Favoring the Stock
The Zacks Consensus Estimate of the company's 2024 earnings per share (EPS) has trended upward to $11.50 from $11.14 in the past 30 days. The estimated figure indicates 69.9% growth from the prior year’s reported levels. Over the said time frame, the consensus estimate for third-quarter 2024 EPS also increased to $4.97 from $4.79, indicating 29.1% year-over-year growth. This bullish trend justifies the stock’s addition to investors’ portfolios.
EPS Trend
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Should You Say Yes to the Stock?
Current consumer demand trends across Royal Caribbean’s diverse product and service offerings look encouraging. This upsurge reflects on its early accomplishments regarding the Trifecta goals, which were meant to be achieved by 2025. Besides, the company reinstating its quarterly dividend payments has managed to garner a positive outlook in the industry.
RCL has outperformed some other industry players, comprising Norwegian Cruise Line Holdings Ltd. NCLH, Carnival Corporation & plc CCL and Lindblad Expeditions Holdings, Inc. LIND. In the past six months, shares of NCLH and CCL have inched up 1.7% each, while shares of LIND have lost 11.1%.
Thus, this Zacks Rank #1 (Strong Buy) stock is sending a positive signal toward investors regarding the judgment of including it in their portfolio per the above discussion. Given the positive trend in estimate revision and the discussed tailwinds, the company’s growth trajectory seems to be moving upward than otherwise. Based on all the discussed aspects, investors can consider this stock in their portfolio for now.
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Carnival Corporation (CCL) : Free Stock Analysis Report
Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report
Norwegian Cruise Line Holdings Ltd. (NCLH) : Free Stock Analysis Report
Lindblad Expeditions (LIND) : Free Stock Analysis Report