Royal Caribbean: Buy More As It Dips, Double Digit Growths Ahead

Core Viewpoint - Royal Caribbean Cruises (RCL) has shown strong recovery from the pandemic, achieving its Trifecta Goals ahead of schedule and maintaining a positive outlook for future profitability, despite recent market corrections [1][2]. Financial Performance - RCL reported FQ2'24 revenues of $4.11 billion, reflecting a 10.4% quarter-over-quarter (QoQ) and 16.7% year-over-year (YoY) increase [2]. - Adjusted EBITDA for the same period was $1.55 billion, up 32.4% QoQ and YoY [2]. - Adjusted EPS reached $3.21, marking an 81.3% increase QoQ and 76.3% YoY [2]. - The company achieved a load factor of 108%, a 1-point increase QoQ and 4 points YoY, alongside expanding net yields of $269.61, which is a 9% increase QoQ and 13.2% YoY [2]. Growth Projections - RCL's management has provided an optimistic FQ3'24 adjusted EPS guidance of $4.95, representing a 54.2% increase QoQ and 28.5% YoY, while raising the FY2024 adjusted EPS guidance to $11.40 at midpoint, a 68.3% YoY increase [2]. - The consensus estimates indicate accelerated growth with a CAGR of +11.7% for revenue and +29.7% for adjusted EPS through FY2026 [8]. Valuation Metrics - RCL's current forward EV/EBITDA valuation is 10.10x and forward P/E valuation is 12.52x, which are considered reasonable compared to peers like Carnival Corporation (CCL) and Norwegian Cruise Line Holdings (NCLH) [9][10]. - The company has a net-debt-to-EBITDA ratio of 3.30x, significantly improved from 7.07x a year prior, indicating a healthier balance sheet [4]. Dividend Policy - RCL has reinstated a quarterly dividend of $0.40 per share, which, while lower than the 2019 level of $0.78, is welcomed by long-term shareholders as it allows for dividend reinvestment [5]. Market Context - The stock has experienced a pullback from recent highs, attributed to market sentiment shifts, despite strong earnings and dividend reinstatement [12]. - The recent correction is viewed as an opportunity for investors to establish positions or dollar cost average into RCL stock [9].