Royal Caribbean’s stock price has seen significant growth this year, more than doubling in value. However, the upcoming earnings report will need to be exceptional in order for the stock to continue its upward trajectory.
The cruise line industry has experienced a surge in 2023 as the recovery from the pandemic gains momentum, propelled by strong demand for international travel. Royal Caribbean (RCL) has witnessed a tremendous 106% increase in its stock price, while Carnival Corporation (CCL) has climbed 117%, and Norwegian Cruise Line Holdings (NCLH) is up by 66% as of Tuesday’s closing.
While other sectors within the travel industry, including U.S. airlines focusing on domestic travel, are grappling with signs of a slowdown in consumer spending, cruise companies are basking in the early stages of their post-Covid-19 recovery. With several months of pent-up demand ahead, they are unlikely to feel the effects of a slowdown until at least 2024.
However, this doesn’t guarantee that the stocks will continue to rise indefinitely. The impressive rally witnessed in 2023 has raised investors’ expectations significantly.
In a recent note, Truist analysts stated, “We see the conflict with the stocks/sector today not with ‘is cruise demand recovering?’ Rather, ‘how much of that recovery is already priced in?'” As a result, they have taken a more neutral stance on cruise stocks and have assigned a Hold rating to Royal Caribbean.
According to FactSet estimates, analysts are anticipating second-quarter earnings per share (EPS) of $1.57 on revenue of $3.4 billion. This reflects a significant improvement compared to a loss of $2.08 per share on revenue of $2.18 billion during the same period last year.
The focus will quickly shift towards guidance for the third quarter, which is typically the best three months for cruise operators. Analysts predict EPS of $2.87 on revenue of $3.8 billion for the September quarter. For the full year, they anticipate earnings of $4.75 per share, which falls towards the higher end of the company’s guidance range of $4.40 to $4.80.
Unlike U.S. airlines such as Alaska Air (ALK) and American Airlines (AAL), who have demonstrated that record-breaking quarters are not sufficient to maintain investor confidence this earnings season, Royal Caribbean finds itself in a unique phase of recovery. However, due to the stock’s recent surge, it will require more than just a strong quarter to satisfy market expectations.
A potential increase in guidance or positive commentary regarding bookings and pricing may be the catalyst needed to drive the stock forward, but the company faces a high bar to meet investor demands.