Royal Caribbean: No Significant Upside Despite Factoring In Generous Assumptions

Summary:

• RCL posted yet another strong quarter and posted a 17.45% y/y revenue growth. Operating margins expanded by 298bps to 33.46%. However, net income margin deteriorated due to higher interest expenses.
• The company raised guidance and expects a strong FY2024. Net yields are expected to grow 11.4%. Capacity will increase by 7.8%. Cruise costs per APCD will only grow 4.25%.
• RCL is well-positioned to continue enjoying industry-related tailwinds. Moreover, RCL’s growth initiatives such as fleet expansion and investments in private islands will help increase the company’s revenue capacity.
• Despite factoring in generous assumptions, valuation analysis suggests that market participants have already fully priced in the company’s potential, suggesting that investors will be better off putting their capital elsewhere.

Introduction

Royal Caribbean Cruises (NYSE:RCL) is a global cruise company that operates renowned cruise brands such as Royal Caribbean International, Celebrity Cruises, and Silversea Cruises. Currently, the company (including its partner brands) has a combined fleet of 68 ships that call on more than 1k

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Short position through short-selling of the stock, or purchase of put options or similar derivatives in RCL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.