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Royal Caribbean (RCL) Up 34% in 6 Months: More Room to Run?

Royal Caribbean Cruises Ltd. RCL is poised to benefit from improvements in booking activities, e-commerce enhancements and fleet-expansion efforts. Also, the improved pricing environment and the continued strength in onboard revenue areas have been important factor for sales improvement over the last few quarters.

Shares of Royal Caribbean have surged 34.1% in the past three months compared with the industry’s 9.7% growth. The price performance was backed by a solid earnings surprise history. Royal Caribbean’s earnings surpassed the Zacks Consensus Estimate in all of the trailing four quarters. Earnings estimates for full-year 2023 and 2024 have moved up 40.6% and 18.6%, respectively, in the past 30 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #1 (Strong Buy). This indicates robust fundamentals and expectations of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Driving Growth

Royal Caribbean has been benefiting from strong close-in demand for Caribbean sailings, improving pricing environment and the continued strength in onboard revenues.

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During the first quarter of 2023, the company reported early consumer engagement, with about 2/3 of its guests purchasing onboard experiences before the sailings. This compares with 48% of guests reported in 2019. The company stated that every dollar of pre-cruse spending translates into approximately $0.70 of incremental spend (on board). Secular tailwinds, courtesy of shifting of consumer preferences from goods to entertainment and travel spending (24% higher than 2019 levels) added to the positives. The company emphasizes on enhancing its e-commerce and pre-cruise capabilities and optimizing its distribution channels to boost guest repeat rates and spending.

Royal Caribbean witnesses better-than-expected booking volumes in first-quarter 2023, which were much higher than the 2019 levels. As of Mar 31, 2023, North America-based sailings portrayed robust booking trends, accounting for nearly 76% of the company’s capacity. RCL registered better-than-expected load factors, owing to a rise in close-in bookings. It also stated that pricing (including and excluding FCCs) remains elevated from 2019 levels.  Also, it reported strength in European bookings, outpacing the 2019 level. As of Mar 31, 2023, the company had about $5.27 billion in customer deposits.

Given the full fleet resumption and load factors at high prices (at approximately 102%), the company expects customer deposits to return to typical seasonality in the upcoming periods. In 2023, the company anticipates solid guest generation from the North America region.

The company focuses on new innovative ships and onboard experiences to boost its offering and deliver superior yields and margins. Moving into 2023, the company has three ships scheduled for delivery — Icon of the Seas, Celebrity Ascent and Silver Nova. The company stated that Icon will have eight distinct neighborhoods and that its stateroom configuration will enable load factors to be accretive to the overall portfolio. The company anticipates the ship to be significantly accretive to its key financial metrics.

Other Key Picks

Some other top-ranked stocks in the Zacks Consumer Discretionary sector are MGM Resorts International MGM, Bluegreen Vacations Holding Corporation BVH and Crocs, Inc. CROX.

MGM Resorts sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 81%, on average. The stock has increased 14.6% in the past year.

The Zacks Consensus Estimate for MGM’s 2024 sales and EPS indicates a rise of 1.4% and 22.3%, respectively, from the year-ago period’s estimated levels.  

Bluegreen Vacations sports a Zacks Rank #1. BVH has a trailing four-quarter earnings surprise of 24.7%, on average. Shares of the company have increased 7.7% in the past year.  

The Zacks Consensus Estimate for BVH’s 2023 sales and EPS indicates a rise of 3.6% and 17.6%, respectively, from the year-ago levels.  

Crocs carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 19.6%, on average. Shares of Crocs have increased 85.8% in the past year.

The Zacks Consensus Estimate for CROX’s 2023 sales and EPS indicates a rise of 13.2% and 5.7%, respectively, from the year-ago period’s levels.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report

MGM Resorts International (MGM) : Free Stock Analysis Report

Crocs, Inc. (CROX) : Free Stock Analysis Report

Bluegreen Vacations Holding Corporation (BVH) : Free Stock Analysis Report

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