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New Cruise Ships And Private Destinations Will Expand Markets

AN
Consensus Narrative from 24 Analysts
Published
08 Aug 24
Updated
30 Apr 25
Share
AnalystConsensusTarget's Fair Value
US$264.06
18.6% undervalued intrinsic discount
30 Apr
US$214.91
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1Y
56.3%
7D
3.6%

Author's Valuation

US$264.1

18.6% undervalued intrinsic discount

AnalystConsensusTarget Fair Value

Key Takeaways

  • New ships and enhanced experiences are boosting revenue through higher onboard spending and pre-cruise purchases, driving per-passenger spend growth.
  • Strong financial management, loyalty programs, and moderate capacity growth initiatives position the company for long-term market share and revenue growth.
  • Heightened macroeconomic uncertainty and potential consumer spending decline risk impacting Royal Caribbean's revenue, margins, profitability, and competitive pricing ability.

Catalysts

About Royal Caribbean Cruises
    Operates as a cruise company worldwide.
What are the underlying business or industry changes driving this perspective?
  • The introduction of new ships like Star of the Seas and Celebrity Xcel, coupled with existing fleet performance, is expected to drive yield growth between 2.6% and 4.6% in 2025, positively impacting revenue and earnings.
  • Enhanced guest experiences, investments in private destinations, and new ships are driving higher onboard spending and pre-cruise purchases, which should support revenue growth by increasing per-passenger spend.
  • The company's financial position, characterized by investment-grade ratings, strong cash flow generation, and a focus on maintaining a flexible balance sheet, positions the company to effectively manage costs and improve net margins.
  • Royal Caribbean's continued focus on loyalty programs, which have increased customer retention and spending, suggests long-term revenue enhancement as repeat visitors book more frequently and spend more per trip.
  • Moderate capacity growth initiatives, including the ongoing introduction of game-changing ships and expansion of exclusive destinations, aim to capture market share in the $2 trillion vacation market, supporting long-term revenue and EPS growth.

Royal Caribbean Cruises Earnings and Revenue Growth

Royal Caribbean Cruises Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming Royal Caribbean Cruises's revenue will grow by 9.4% annually over the next 3 years.
  • Analysts assume that profit margins will increase from 19.4% today to 25.9% in 3 years time.
  • Analysts expect earnings to reach $5.7 billion (and earnings per share of $20.82) by about April 2028, up from $3.2 billion today. The analysts are largely in agreement about this estimate.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.9x on those 2028 earnings, up from 18.1x today. This future PE is lower than the current PE for the US Hospitality industry at 22.6x.
  • Analysts expect the number of shares outstanding to grow by 5.52% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 8.48%, as per the Simply Wall St company report.

Royal Caribbean Cruises Future Earnings Per Share Growth

Royal Caribbean Cruises Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • The heightened uncertainty in the macroeconomic environment presents a risk that could impact consumer behavior and spending, potentially affecting Royal Caribbean's future revenue and earnings.
  • Continued dependence on consumer discretionary spending, which may decline in an economic downturn, could pressure pricing and onboard spending, impacting revenue and net margins.
  • Although recent trends are positive, the risk of a potential slowdown in close-in bookings remains a concern, which could affect the company's yield and overall profitability if consumer confidence weakens further.
  • Royal Caribbean's ability to maintain price integrity amidst varying market conditions could face challenges, risking future yield growth and revenue generation should competitive pricing pressures intensify.
  • Uncertainties around currency exchange rates and fuel prices, while currently favorable, could reverse and adversely impact the company’s earnings and operational costs, affecting overall profitability.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of $264.06 for Royal Caribbean Cruises based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $330.0, and the most bearish reporting a price target of just $185.0.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $21.9 billion, earnings will come to $5.7 billion, and it would be trading on a PE ratio of 18.9x, assuming you use a discount rate of 8.5%.
  • Given the current share price of $216.58, the analyst price target of $264.06 is 18.0% higher.
  • We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

Warren A.I. is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by Warren A.I. are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that Warren A.I.'s analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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