Workflow
Is Royal Caribbean Stock Worth Buying at a Premium P/S Valuation?
RCLRoyal Caribbean Cruises .(RCL) ZACKS·2025-01-13 18:41

Valuation and Market Position - Royal Caribbean Cruises Ltd (RCL) shares are trading at a premium with a forward 12-month price-to-sales (P/S) ratio of 3.37X, compared to the industry average of 2.28X [1] - RCL is trading at a premium compared to peers like Norwegian Cruise Line Holdings Ltd (NCLH), Carnival Corporation & plc (CCL), and OneSpaWorld Holdings Limited (OSW), which have forward 12-month P/S multiples of 1.10, 1.07, and 2.02, respectively [5] - The premium valuation reflects market confidence in RCL's robust financial performance and growth potential, with the stock surging 87.2% in the past year, significantly outpacing the industry's 18.4% growth [6] Industry and Demand Trends - The cruise industry is projected to surpass 37 million passengers globally in 2025, with market revenue expected to grow 10% year over year [4] - RCL is benefiting from strong demand, with advanced bookings reflecting positive trends and consumer spending onboard and pre-cruise purchases showing strong growth [4][7] - Load factors reached 111% in Q3 2024, driven by higher participation at increased prices, and customer deposits grew to 5.32billionasofSept.30,2024[10][11]GrowthStrategiesandFleetExpansion−RCLisinvestinginamoderndigitalplatformtoimprovethevacationbookingprocessandincreasecustomerspending[7]−ThecompanylaunchedUtopiaoftheSeasinQ32024,whichhassignificantlyoutpacedexpectationsinticketpricingandonboardrevenues[12]−RCLisexpandingitsfleetwithplansforafourthIcon−classshipin2027,followingthestrongreceptionofIconoftheSeasandanticipationforStaroftheSeas[13]−OtherupcominglaunchesincludeStaroftheSeasinQ32025,CelebrityXcelinQ42025,andtheseventhOasis−classshipin2028[13]2025OutlookandCapacityExpansion−RCLexpectsa55.32 billion as of Sept. 30, 2024 [10][11] Growth Strategies and Fleet Expansion - RCL is investing in a modern digital platform to improve the vacation booking process and increase customer spending [7] - The company launched Utopia of the Seas in Q3 2024, which has significantly outpaced expectations in ticket pricing and onboard revenues [12] - RCL is expanding its fleet with plans for a fourth Icon-class ship in 2027, following the strong reception of Icon of the Seas and anticipation for Star of the Seas [13] - Other upcoming launches include Star of the Seas in Q3 2025, Celebrity Xcel in Q4 2025, and the seventh Oasis-class ship in 2028 [13] 2025 Outlook and Capacity Expansion - RCL expects a 5% increase in capacity for 2025, driven by new ship additions and expanded offerings [14] - Caribbean capacity is projected to grow 5% in 2025, accounting for 57% of RCL's total deployment, with European itineraries at 15%, Alaska at 6%, and the Asia Pacific at 11% [15] - The company is preparing for the opening of Royal Beach Club Paradise Island at the end of 2025, which will support its Caribbean itineraries in 2026 [15] Financial Performance and Analyst Confidence - RCL's trailing 12-month return on equity (ROE) of 52.92% significantly outpaces the industry average of 21.31%, highlighting efficient management and strong shareholder returns [18] - Analysts have raised their 2025 earnings per share estimates by 1.7% to 14.42, indicating a year-over-year growth rate of 23.8% [19] - The Zacks Consensus Estimate for 2025 sales is $18.05 billion, suggesting 9.5% year-over-year growth [20]