Royal Caribbean Cruises Ltd. RCL has been riding a wave of momentum, with its stock hovering near its 52-week high. This impressive performance can be attributed to strong consumer demand, driven by a resilient economy, low unemployment, stabilizing inflation, and record-high household net worth. Shifts in consumer preferences toward experiences, especially travel, have further fueled growth, with research showing that consumers are allocating more vacation days and spending more on travel than any other leisure category.

RCL shares closed Monday's session at $199.91, below the 52-week high of $204.37 reached last Thursday. The current price represents a minor retreat from the peak, on the grounds of some profit booking.

Shares of this Miami-based cruise company have rallied 46.3% in the past six months compared with the Zacks Leisure and Recreation Services industry’s growth of 5.9% and the S&P 500’s 15.5% increase. RCL has outpaced other industry players like Carnival Corporation & plc CCL, up 43.8%, Norwegian Cruise Line Holdings Ltd. NCLH, up 21.3%, and OneSpaWorld Holdings Limited OSW, up 35.8% in the past six months.

RCL Price Performance

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Technical indicators suggest continued strong performance for RCL. As of Monday, Royal Caribbean stock was trading above its 50-day moving average of $172.31 and its 200-day moving average of $147.40. The technical strength underscores positive market sentiment and confidence in RCL's financial health and prospects.

RCL Stock Trades Above 50 and 200-Day Moving Average

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Factors Acting in Favor of Royal Caribbean

Strong Demand and Record Bookings: During the second quarter of 2024, Royal Caribbean delivered approximately 2 million vacations, with guest satisfaction at exceptional levels. Yields grew 13.3% compared to the prior year, surpassing the company’s guidance. Bookings have been robust, with demand consistently outpacing 2023 levels, particularly in key markets like North America, the Caribbean and Europe. The North American market, which accounts for 80% of Royal Caribbean’s sourcing, continues to show strong consumer demand, driving growth across all key products.

Positive Macroeconomic Trends Favor Cruising: Macroeconomic trends further support Royal Caribbean’s growth. Consumers are increasingly prioritizing travel and experiences, with leisure time up 10% compared with 2019 levels. Baby boomers, who hold 50% of U.S. wealth, are expected to increase their travel spending, benefiting the cruise industry. Additionally, multigenerational travel is becoming more common, contributing to Royal Caribbean’s growing bookings.

Expanding the Vacation Market Share: Royal Caribbean is well-positioned to capitalize on the $1.9 trillion vacation market. The company is targeting both new and younger customers, with millennials and Gen Z making up a growing portion of its clientele. The recent launch of Utopia of the Seas, designed for short Caribbean getaways, and the introduction of Silver Ray in the ultra-luxury segment, are expected to attract more first-time cruisers and younger customers. The company's strategic growth plan, including moderate capacity growth, strong cost discipline, and innovative new ships, ensures long-term profitability.

Early Achievement of Financial Milestones: Royal Caribbean achieved its "Trifecta" financial goals a full 18 months ahead of schedule. This strategic plan focused on delivering triple-digit adjusted EBITDA per available passenger cruise day, double-digit adjusted earnings per share (EPS), and a return on invested capital in the teens. With these key objectives met, the company’s leverage has now dropped below 3.5x, excluding new ships delivered midyear. These milestones underscore the strength of RCL’s financial performance, making it a compelling investment.

RCL Estimates Moving Up

RCL expects its 2024 EPS in the range of $11.35-$11.45, up from the prior projection of $10.70-$10.90. The Zacks Consensus Estimate for RCL’s 2024 and 2025 EPS has moved up 0.9% and 1.2%, respectively, in the past 60 days. The upward revision in earnings estimates indicates analysts’ increasing confidence in the stock.

RCL Estimate Movement

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Returns Higher Than the Industry

Royal Caribbean’s return on invested capital (ROIC) has outperformed the industry average in the trailing 12 months. ROIC of RCL was 15.38% compared with the industry average of 9.54%.

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The company’s impressive ROIC is a testament to its strong operational efficiency, strategic execution, and robust financial health. This performance reflects Royal Caribbean's ability to capitalize on favorable macroeconomic trends, such as strong consumer demand for travel and experiences. The company's early achievement of its "Trifecta" financial goals, further underscores its capacity to generate superior returns. Additionally, with expanding market share, record bookings, and disciplined cost management, RCL is well-positioned for long-term profitability and continued investor confidence.

RCL’s trailing 12-month return on equity is 52.5%, ahead of the industry average of 19.86%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders’ funds in its operations to generate income.

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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 15.18, lower than the industry’s ratio of 20.33. 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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Should You Climb Aboard?

Royal Caribbean presents a compelling investment opportunity, driven by its impressive financial performance, robust demand, and strategic milestones. The company's early achievement of its financial targets, alongside record bookings and favorable macroeconomic trends, highlights its operational efficiency and growth potential. RCL’s stock has consistently outpaced its peers, and the company is well-positioned to benefit from the growing demand for travel experiences, particularly among younger consumers and affluent baby boomers.

Additionally, with the stock trading at a discount compared to its industry, RCL offers an attractive entry point for investors. Given the company's solid financial outlook, expanding market share, and favorable valuation metrics, we believe that this Zacks Rank #2 (Buy) stock is an ideal candidate for those looking to capitalize on the booming cruise industry.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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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

OneSpaWorld Holdings Limited (OSW) : Free Stock Analysis Report

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