Here's Why Investors Should Retain Royal Caribbean (RCL) Now
Royal Caribbean Cruises Ltd. RCL will likely benefit from strong bookings, digital initiatives and ship upgrades. This and the focus on improving its commercial capacities bode well. However, increased expenses are a concern.
Let’s discuss why investors should retain the stock for the time being.
Factors Driving Growth
Shares of Royal Caribbean have surged 34.5% in the past three months compared with the industry’s 19.4% growth. The company has been benefitting from solid demand for cruising and acceleration in booking volumes. Also, the emphasis on strong pricing (on closer-in-demand) bodes well. Despite economic uncertainties, the demand for vacations continues to thrive, underpinned by engaged consumers seeking cruise experiences. This favorable sentiment is supported by healthy economic indicators, increased spending on experiences and a growing preference for cruising.
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In 2024, RCL anticipates promising growth due to its strong booking position, fleet expansion and enhanced commercial capabilities. The company is committed to innovating ship designs and onboard experiences to attract and retain customers in its vacation ecosystem. Plans for 2024 include the launch of two new vessels — Utopia of the Seas for Royal Caribbean International and Silver Array for Silversea — aiming to revolutionize the travel industry and enrich guest experiences. In January 2024, alongside the debut of Icon of the Seas, Hideaway Beach — an exclusive adult paradise at Perfect Day at CocoCay — will make its entrance, with pre-cruise sales exceeding initial projections.
RCL is actively enhancing its commercial abilities to refine distribution networks, strengthen customer loyalty, and decrease acquisition costs. The company observed a significant increase in new customer engagement, with about two-thirds of third-quarter guests being newcomers to their brand or cruising. Concurrently, it doubled its repeat booking rate, indicating robust customer loyalty and satisfaction. Simplifying the pre-booking process led to roughly one-third of purchases via their mobile app. In the third quarter, around 70% of guests made pre-cruise purchases at notably higher Average Per Diem Spends (APDS) compared to prior years.
The company stated that 2024 pre-cruise revenue has more than doubled from 2023 levels, with a higher number of guests engaging before their trips at elevated price points. Moving forward, the company plans to prioritize operational excellence, business efficiency and leveraging platform efficiencies to maximize returns.
Concerns
Royal Caribbean has been bearing the brunt of high expenses for quite some time. During the third quarter, total cruise operating expenses were $2.14 billion compared with $1.97 billion in the year-ago quarter. The upside was mainly driven by a rise in food, fuel and onboard expenses. Also, operations at additional capacity and higher occupancy added to the downside. Moving ahead, the company anticipates inflationary and supply chain challenges (mainly related to fuel and food costs) will persist for some time. For 2023, net cruise costs, excluding fuel per APCD, are expected to be up 3.9-4.4% from 2019 levels. Moreover, the company expects continued fuel cost escalations extending through 2025.
Zacks Rank & Key Picks
Royal Caribbean has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Consumer Discretionary sector are as follows:
Stride, Inc. LRN sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 44.3% on average. Shares of LRN have soared 87.3% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for LRN’s 2024 sales and EPS implies an improvement of 9.1% and 34.7%, respectively, from the prior-year levels.
JAKKS Pacific, Inc. JAKK sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 61.8%, on average. Shares of JAKK have skyrocketed 91.8% in the past year.
The Zacks Consensus Estimate for JAKK’s 2024 sales calls for 3.6% growth from the year-earlier levels.
Accel Entertainment, Inc. ACEL carries a Zacks Rank #2 (Buy). ACEL has a trailing four-quarter earnings surprise of 27.7%, on average. Shares of ACEL have surged 25.3% in the past year.
The Zacks Consensus Estimate for ACEL’s 2024 sales calls for 2.7% growth from the year-earlier levels.
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Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report
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Accel Entertainment, Inc. (ACEL) : Free Stock Analysis Report
