The popular cruise line stock is only a fifth of the way to doubling this year, but it knows the boat drill.
One of the three leading cruise line stocks is standing out again in 2024. Royal Caribbean Cruises (RCL -0.57%) stock is not just beating the market again by trading 21% higher year to date. It’s the only one delivering a positive gain, as rivals Carnival Corp. and Norwegian Cruise Line are currently trading lower than they were at the start of the year.
Royal Caribbean also led the way last year, soaring 162% in a year that found all three stocks coasting well ahead of Wall Street averages. Can Royal Caribbean double again in 2024? It may seem like a tall order for a stock that is only a fifth of the way to repeating the feat at the halfway point of the year, but the ocean waters could be more inviting than the market thinks at this point. Let’s go over three reasons why the cruise line operator’s stock can double again this year.
1. The cruise line industry is sailing along nicely
There are plenty of reasons why Royal Caribbean continues to be the class act among the three leading operators of ocean liners. It has historically commanded higher margins and stronger revenue growth than its rivals. This was true before the pandemic, and it continues to be the case after the crisis that temporarily shut sailings down four years ago.
However, Royal Caribbean, Carnival, and Norwegian are all seeing their fundamentals improve with every passing update. Carnival is the latest player to report quarterly results, operating on a different fiscal calendar than its peers. Last week’s financial performance did not disappoint. Carnival exceeded expectations on both ends of the income statement, delivering its first profit for a fiscal second quarter in five years.
It’s not just Carnival showing off its sea legs. Earlier this year the market saw Royal Caribbean and Norwegian post blowout results with raised guidance, only to announce three weeks later in both cases that that they were boosting the already upwardly revised outlook. All three operators are benefiting from strong demand. They all currently have record bookings for future sailings.
The only thing brighter than the past is the future, yet two of the three stocks are trading lower this year. I argue that all three stocks are currently depressed, even with Royal Caribbean’s 21% increase this year. There are big gains being suppressed, and all three stocks could jump higher in the second half of 2024 if the fundamentals keep improving.
Image source: Getty Images.
2. Following the beat
Royal Caribbean stock has more than tripled since the start of last year, but it is still cheap by most conventional measuring sticks. It’s trading for just 14 times this year’s projected earnings and 12 times next year’s analyst forecast. The multiple is higher if we go with enterprise value instead of market cap given the leveraged nature of the industry players, but that’s also the fuel that can be a tailwind when things are going well.
Things are going well.
The thing about Royal Caribbean’s attractive forward P/E ratio is that Wall Street pros might be aiming too low. This is exactly what has happened in the past. Size up where analyst profit targets were relative to where Royal Caribbean landed just over the past year.
| Quarter | EPS Estimate | EPS Actual | Surprise |
|---|---|---|---|
| Q2 2023 | $1.55 | $1.82 | 17% |
| Q3 2023 | $3.46 | $3.85 | 11% |
| Q4 2023 | $1.13 | $1.25 | 11% |
| Q1 2024 | $1.33 | $1.77 | 33% |
Data source: Yahoo! Finance.
Royal Caribbean has consistently rattled off double-digit percentage beats on the bottom line. It’s not a surprise that the stock more than doubled last year. The real surprise here is that it saved its biggest beat for its latest report, but the stock isn’t faring as well as it did in 2023 — so far.
3. Analysts keep trying to catch up
The sentiment is only getting more bullish since Royal Caribbean’s last blowout performance in April. It will announce its second-quarter numbers later this month. Estimates continue to inch higher. Profit forecasts for the quarter that ended over the weekend have grown from $2.37 a share to $2.74 a share since its last report. Momentum suggests another beat is possible.
Keeping up with a company that keeps leaving Wall Street pros in the dust isn’t fun for the analysts, but it’s a treat for investors. The last move came last week when Citi boosted its price target from $165 to what is now a Street-high $204. Carnival’s strong report inspired the increase, but recent history tells us that the market is aiming too low again.
Citi’s new price goal — again, currently the highest of all analysts — is just 58% higher than where Royal Caribbean’s stock was at the beginning of the year. Put another way, there isn’t an analyst out there who thinks Royal Caribbean will double again in the next six months. The way that cruise line stocks in general have defied expectations, an optimistic contrarian is probably a good thing to be right now.
Citigroup is an advertising partner of The Ascent, a Motley Fool company. Rick Munarriz has positions in Norwegian Cruise Line and Royal Caribbean Cruises. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.