Goldman Sachs analyst Lizzie Dove reiterated a Buy rating on the shares of Royal Caribbean Cruises Ltd
In its recent investor day, the management has set a target of a 20% compound annual growth rate (CAGR) in earnings per share through 2027, forecasting $20.50 compared to the consensus estimate of $19.90.
Looking ahead, Royal Caribbean anticipates 1-1.5 percentage points of like-for-like yield growth, plus another 1-1.5 percentage points from new ships, which could rise in favorable market conditions, along with gains from investments in private islands.
Crucially, Royal Caribbean isn't noticing any shifts in consumer behavior, and strong trends are visible from real-time spending data on the ships, supported by the value gap compared to land-based vacations, noted the analyst.
In addition to the broader industry tailwinds benefiting the cruise sector, management highlighted several unique and structural factors driving yield growth, including the introduction of a new ship every year, which is expected to generate strong pricing premiums and opening a new private beach club or island each year through 2028.
Royal Caribbean did not introduce a new capital return program but stated it would be opportunistic with share buybacks and maintain a competitive dividend.
Royal Caribbean sees a significant opportunity to grow its market share, noting that cruises have increased their share of the vacation market by 80s, with RCL gaining over 100 basis points.
Currently, only about 5% of the U.S. population cruises, compared to higher market penetration rates for destinations like Las Vegas (35%) and Orlando (18%), indicating room for growth in the cruise industry.
Management identified key drivers for market share growth, including 57 million retirees by 2027, 130 million "peak family" members who typically travel 3-4 times a year, and 88 million "next-generation cruisers," with 72% planning to travel and spending an average of $3,500 annually.
Royal Caribbean's long-term targets slightly exceeded Street expectations for around $20 EPS, though a 2025 guidance raise did not materialize.
Despite this, both near-term and long-term outlooks were positive, highlighting strong growth potential and positioning Royal Caribbean to capture a larger share of the vacation market, concluded the analyst.
Price Action: RCL shares are trading higher by 0.23% at $227.40 at last check Wednesday.
