Royal Caribbean Cruises Ltd
Cruise demand remains strong, the analyst says. Royal Caribbean management remains focused on "optimizing" its booking curve for 2025 and beyond, rather than pursuing "record" numbers.
A key strategy for this optimization is the use of artificial intelligence. AI now drives 95% of the 20-25 million price points in the market at any given time. Boss equated the trend to how airlines adjust their fares frequently.
The analyst estimates fourth-quarter earnings per share (EPS) at $1.50. That's slightly above the Street's $1.49.
There are two key developments suggesting potential upside for onboard spending. First an increase in onboard spending each quarter throughout the year and booking trends improved during the quarter, with 2025 booking volumes exceeding last year's, noted the analyst.
"To this point, RCL is a share gainer in the $1.9 trillion global vacation market, which is estimated to grow at ~4% annually with RCL at only ~1% share today," the analyst notes.
Currently, Royal Caribbean holds just about 1% of this market, while the cruise sector accounts for approximately 3-4%.
A major point of focus, the analyst says, for the upcoming analyst day is management's goal of achieving a roughly 50% spread between yields and costs, "net" of reinvestments in growth initiatives, which will set the stage for future expansion.
Analysts expect Royal Caribbean's strategy of moderate yield growth combined with strong cost control to result in approximately 210 basis points of annual EBITDA margin expansion, reaching 47.8% by 2027 or around 600 basis points higher than 2019 levels.
Finally, the analyst views the company as a top-tier player in its sector due to its industry-leading net promoter scores, competitive portfolio of destinations, including Perfect Day at Cococay, which rivals land-based options, stronger cost discipline compared to its competitors, and ability to reduce leverage through EBITDA growth and free cash flow generation.
Price Action: Royal Caribbean shares are trading higher by 3.64% at $241.65 on the last check Friday.
