Can Royal Caribbean Keep Cruising in 2024?

One of the best performing stocks of 2023, Royal Caribbean Cruises Ltd (NYSE:RCL), anticipates more smooth sailing in 2024.

The cruise line posted fourth quarter earnings on Thursday that beat estimates and provided guidance that was significantly better than what analysts expected.

For a stock that was the third best performer on the S&P 500 last year, returning 161% for the year, the question is: Can Royal Caribbean keep the momentum going?

The fourth quarter and year-long numbers for Royal Caribbean were fantastic. Revenue jumped 28% year-over-year in the quarter to $3.3 billion, fueled by gains in passenger tickets sold, passenger cruise days, and passengers carried. It led to net income of $280 million, or $1.06 per share, up from a net loss of $500 million in the fourth quarter of 2022. Adjusted earnings per share for the quarter was $1.25 per share.

For all of 2023, revenue spiked to $13.9 billion, up 56% over 2022, with net income at $1.7 billion, or $6.31 per share, compared to net loss of $2.2 billion the previous year. Adjusted net income for the year was $1.8 billion, or $6.77 per share. To illustrate how much Royal Caribbean exceeded its own expectations in 2023, its guidance for adjusted EPS for 2023 was $3.00 to $3.60 per share.

“2023 was an exceptional year, propelled by unmatched demand for our brands from new and loyal guests,” Jason Liberty, president and CEO at Royal Caribbean, said. “With the wind in our sails and record-breaking bookings, 2024 is poised to be another robust year, and we expect to achieve two of our Trifecta goals one year early.”

The Trifecta goals that Liberty mentioned are three key financial goals that the firm set out to achieve by 2025: triple-digit EBITDA (earnings before interest, taxes, depreciation, and amortization) per available passenger cruise days (APCD); double-digit earnings per share; and a return on invested capital (ROIC) in the teens.

EBITDA per APCD was on the precipice of that goal at the end of 2023 at $96.85. APCD is a key metric for Royal Caribbean as it gauges capacity based on double occupancy per cabin multiplied by the number of cruise days for the period. In effect, this helps the company determine how to maximize capacity, and revenue.

The second Trifecta metric, ROIC, which measures how efficiently the company generates income relative to capital invested in the business, has already been met. In September, Royal Caribbean posted an ROIC of 13.2%, which is in the teens.

The last of the three goals, double-digit earnings per share, is still a ways off at $6.31 per share as of Dec. 31, but it is expected to be close by the end of this year.

The momentum that Royal Caribbean established in 2023 should in no way abate in 2024. The so-called “wave” season, which is underway right now when cruise lines typically offer deals and promotions, is off to a record start, in terms of bookings.

Officials said that the five best booking weeks in Royal Caribbean’s history have occurred in the last three months. That has resulted in a record booked position for 2024, at significantly higher prices. The cruise line is also seeing increased onboard spending and pre-cruise purchases – at higher prices.

“Demand for our brands continues to outpace broader travel as a result of consumer spend further shifting toward experiences and the exceptional value proposition of our products,” Liberty said.

For the first quarter of 2024, Royal Caribbean projects adjusted earnings per share of $1.10 to $1.20, which is slightly below the fourth quarter number. But for the full year, the firm targets EPS of $9.50 to $9.70, which would be a 40% to 43% increase over 2023. This also exceeds analysts’ consensus expectations.

Another great thing about this stock is that its valuation is fairly reasonable, with a trailing 12-month price-to-earnings (P/E) ratio of 38 and a forward P/E of around 14. Based on this valuation, and its growth and bookings projections, it looks like there is some clear sailing ahead for Royal Caribbean.