Last year was pretty splash-tacular for Royal Caribbean Cruises (RCL 3.65%) investors. The popular cruise line operator saw its shares more than double -- up 162% -- last year. Hot stocks rarely repeat the feat, and to be fair, Royal Caribbean is only up 6% in 2024 through Thursday's close. Just give it some time to find its sea legs again.
Royal Caribbean cranked out another encouraging financial update this week. There are some pretty good reasons to believe that the world's second-largest cruise line can ramp up enough upticks in the next eight months to double again this year. Let's take a closer look at three of them.
1. The tide has been rising three times in the last three months
A lot has happened to Royal Caribbean's public guidance in the last three months. It has been revising its profit outlook higher, doing so even between earnings calls at one point. Let's break it down:
- On Feb. 1, Royal Caribbean delivered a strong fourth-quarter report. It initiated a forecast calling for $9.50 to $9.70 in earnings per share for 2024, a 40% to 43% jump from where it landed last year. Analysts were only holding out for adjusted net income of $9.19 a share.
- Three weeks later -- on Feb. 21 -- it tweaked its forecast. Strong demand during the industry's "wave" season, when cruise lines offer promotional deals after the holidays to help fill available berths for the balance of the year and beyond, left it in better shape. Royal Caribbean said that it now expects adjusted earnings per share to clock in between $9.90 to $10.10, a 46% to 49% improvement over 2023.
- This brings us to Thursday morning's update. Royal Caribbean is now modeling an adjusted profit of $10.70 to $10.90 a share, a 58% to 61% jump in 2024.
Royal Caribbean isn't just coasting. It's cruising.
Image source: Getty Images.
2. The stock is cheaper than you think
At least six analysts would go on to jack up their price targets on the stock after this week's stellar quarterly report. They see the value in the stock's rapidly ascending fundamentals, even though the year-to-date stock chart suggests otherwise.
Analysts figured that Royal Caribbean would earn $9.19 a share three months ago. The midpoint of its latest outlook calls for its adjusted net income to be 18% higher.
Why is the stock trading just 6% higher this year? Given the recent momentum in the business, you would expect the stock to outpace the 18% growth in forward profitability, not just a third of the boost.
The math understandably gets even better in terms of valuation. Royal Caribbean is now trading for less than 13 times this year's adjusted bottom-line guidance. That seems like a great price for a company growing its earnings 58% to 61% this year.
If you want a cherry on top of your midnight pool deck buffet sundae, consider that Royal Caribbean has consistently cranked out double-digit percentage beats on the bottom line over the past year.
Royal Caribbean isn't just cruising. It's cheap.
3. Folks want to go cruising
Royal Caribbean and its peers are looking good in the near term. They are collectively posting record bookings and customer deposits, assuring themselves of several strong quarters barring an economic collapse, another pandemic, or heightened geopolitical tensions.
Revenue rose 29% to $3.7 billion in the first quarter, just ahead of where Wall Street pros were perched. The real story here is how well the cruise line operator that has historically posted industry-leading growth and margins is milking its boom line.
Net yields -- a metric that is basically revenue available on cruise day without some of the more variable expenses, including travel agent commissions and airfare deals -- rose 19.3% in the first three months of this year. This is nearly five times the 4.1% increase in net cruise costs per available passenger cruise day.
Even in a historically sleepy quarter, Royal Caribbean was able to post explosive profitability and cash flow. The ships weren't leaving empty, checking in with a healthy load factor of 107%. With passengers comfortable spending more once onboard for premium experiences and shore excursions, it's hard to bet against cruise line stocks in general, and Royal Caribbean in particular.
Royal Caribbean isn't just cheap. It's rocking.
