Fiery Flash: Royal Caribbean Group: in good shape

Shares of American company Royal Caribbean Cruises were one of the better performing on the US stock market over the past week. They gained some 6% against some 1.9% for the broad market index S&P 500.

 

Royal Caribbean Group (RCG) is a cruise holding company that operates a global fleet of 67 ships that travel the world. It is the number two in its industry behind Carnival Corporation.  RCG serves millions of clients via brands that include Royal Caribbean, Celebrity Cruises and Silversea. It also controls 50% of a joint venture that operates TUI Cruises and Hapag-Lloyd Cruises and operates land-based vacation experiences.

 

The strong performance of RCG shares (and that of the broader cruise sector) over the past week was due to optimism around the trade environment (a.o. the postponement of higher tariffs in the US on imports from Europe) and lower bond yields. In addition, RCG won back its investment grade status as credit rating agency Moody’s upgraded its long-term credit rating to the Baa3-level. This way Moody’s followed peer S&P that already lifted its credit rating on RCG a couple of months ago. Moody’s maintains its positive outlook on RCG. 

 

During the Covid-19 crisis the tourist industry suffered a lot. Shares of RCG fell 75% when tourism came to a abrupt nearly complete halt around March 2020. As the Covid-19 crisis later subsided – cruise ships were not allowed to leave US ports for over a year! –, the demand for tourism and cruises came back with a bang (‘vengeance travel’). Today, demand for tourism is showing some signs of fatigue, but demand for cruises demand stays firm. Last April, RCG management slightly lifted financial guidance. For the full year 2025 it now looks for earnings per share growth of some 28% and 53.3 mln available passenger cruise days (double occupancy per cabin, multiplied by the number of cruise days). For the period 2024-2027, management expects a 20% compound annual growth rate in adjusted earnings per share and a return on invested capital in the high teens.

 

Since the start of the year, shares of Royal Caribbean Group gained some 10.7% and are close to the all-time high levels hit in February 2025. That is a very strong performance versus the S&P 500 that is relatively flattish (+1%) over the same time frame. Today, shares of RCG trade at some 15.5 times earnings, a ratio enterprise value/EBITDA of 12.9 and offer a dividend yield of some 1%. Until further notice, demand for cruises remains strong, but it cannot be ruled out that the company will find itself in rougher waters if demand starts to wane.