This Popular Cruiseline is a Top Cruise Stock to Buy Today

December 20, 2023
By The Investing Insider Staff

Key Takeaways:

  • Royal Caribbean Group is the 2nd largest cruise operator globally, with a strong recovery post-pandemic evident in 477% revenue growth in 2022, and additional 69% growth in the first quarter of 2023.
  • The company's Trifecta program aims to achieve record 2019 levels again by 2025 for revenue, EPS, and ROIC through capacity growth, yield growth, and cost control.
  • With high occupancies already over 100% in 2023, new ship deliveries underway, and reopening of Asia, Royal Caribbean is well-positioned for future growth.

The cruise industry has shown remarkable resilience and is on a strong recovery path post-COVID-19.

According to the Cruise Lines International Association's (CLIA) 2023 report, cruise tourism is expected to reach 106% of its 2019 levels this year, with an estimated 31.5 million passengers sailing.

The industry is witnessing significant growth with numerous new ships set to hit the market in 2023. Major brands like Carnival, Royal Caribbean, and MSC Cruises are expanding their fleets, and there are several startups entering the market, signaling a healthy and competitive industry environment.

The global cruise ship footprint is also expanding. Over 2,000 cruise ports are now operational around the world. Notably, Port Canaveral has emerged as the world's busiest cruise port, highlighting the industry's expanding reach and popularity. 

With the cruise industry's combination of recovery momentum and expansion, this could be a compelling opportunity for investors.  Our top cruise line stock to buy is the current second largest company by market share: Royal Caribbean (Ticker: RCL).

Cruise line market share.
Market share of different cruise lines.

Top Cruise Stock to Buy: Royal Caribbean (Ticker: RCL)

Royal Caribbean

Why We Think Royal Caribbean is a Top Stock to Buy Today:

Royal Caribbean Group stands as the second largest cruise operator globally and has shown impressive resilience and growth coming out of the pandemic.

After revenues plunged to just 23% of 2019 levels in 2020, Royal Caribbean rebounded strongly with over 477% revenue growth in 2022 and 69% YOY growth in Q1 '23. The company's bookings and occupancy rates have already exceeded pre-pandemic levels in 2022, with over 100% occupancy delivered and record booking weeks seen this year.

Looking ahead, Royal Caribbean has several catalysts that position it for continued growth.

The company's Trifecta program aims to achieve record revenue, earnings per share, and return on invested capital levels by 2025 through targeted capacity expansion, yield growth, and cost controls.

Royal Caribbean's trifecta program.

Royal Caribbean also has new ship deliveries underway that will boost capacity by 40,000 berths through 2026. The reopening of Asia as both a destination market and source market represents a major opportunity as well given the region's high-spending cruise customers.

With its leading market share, growth strategies, proven execution through the pandemic, record booking trends, and upside from Asia, Royal Caribbean emerges as a compelling turnaround story in cruising.

The company’s strong occupancy rates and booking momentum make it well-placed to capitalize on the industry tailwinds.

For investors seeking a play on the cruise industry recovery with upside potential, Royal Caribbean stands out as a top stock to buy.

Latest Results:

Royal Caribbean's revenue in Q3 2023 increased 39% year-over-year.  This comes on the backs of a very strong 2022 yearly total which saw revenues spike 477% from COVID levels. The company's EBITDA in Q3'23 also more than doubled year-over-over to $1.18 billion, a 132% increase over Q3'22.

Investing Insider Growth Catalysts:

  • Expanding global footprint - The report highlights that Royal Caribbean is focused on expanding its global footprint, especially in emerging markets like Asia-Pacific and the Middle East. Tapping into these new source markets for cruise passengers can drive significant growth.
  • Increasing customer loyalty - Royal Caribbean's loyalty programs help drive repeat business and higher customer lifetime value. Enhancing these programs to boost customer loyalty, retention, and referrals can support growth.
  • Higher onboard spending - The report notes that onboard spending on amenities, casinos, shore excursions etc. is an important revenue stream. Strategies to stimulate higher onboard spending per passenger through personalized offerings can catalyze revenue growth.
  • New product innovations - The report points to Royal Caribbean's track record of delivering innovative cruise experiences via new classes of ships, entertainment and dining concepts etc. Continuing this product innovation can attract new cruisers and increase demand.
  • Strategic partnerships - Forming partnerships with travel agents, port authorities, destination marketing firms and other players in the cruising ecosystem can help Royal Caribbean expand its reach and grow passenger volumes.

Final Thoughts:

After recovering from the COVID shutdowns, the cruise industry is ripe for the picking.

Royal Caribbean stands out as top performer and has demonstrated robust recovery over the past two years. With the company projecting strong continued growth, we see RCL as a top cruise stock to buy today.

Frequently Asked Questions:

Q: What are Royal Caribbean's major cruise line brands?

A: Royal Caribbean International, Celebrity Cruises, and Silversea Cruises. It also has stakes in TUI Cruises and Hapag-Lloyd Cruises.

Q: How did the pandemic impact Royal Caribbean's financial performance?

A: Revenue plunged to just 23% of 2019 levels in 2020 given suspensions. But it rebounded strongly by 2022 with 470%+ revenue growth over 2020.

Q: What goals does the Trifecta program target by 2025?

A: Increase EBITDA per APCD to $87, increase earnings per share (EPS) to over $9.54, and increase return on invested capital (ROIC) to over 10.5%.

Q: What are the key growth drivers for Royal Caribbean going forward?

A: High occupancy over 100%, new ship deliveries boosting capacity, reopening of Asia markets, and continued robust booking momentum.

-Investing Insider Staff
This article is informational purposes only and is not investment advice.  See full disclaimer here
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