By Callum Keown
Royal Caribbean Group needs to calm market fears when it reports earnings Thursday, if the stock is to sail higher again.
It was a bumper 2023 for the cruise industry as international travel demand surged after Covid-19 pandemic restrictions were lifted, but Royal Caribbean has even greater expectations for 2024.
The stock was the one of the best-performing in the S&P 500 last year -- its 162% rise was only bettered by Nvidia and Meta Platforms. However, the Royal Caribbean is having a tougher year than last and investors need reassurance, more than anything, when the cruise operator reports earnings before the open.
The company raised its full-year earnings outlook to a midpoint of $10 a share in February, citing strong bookings demand and elevated consumer spending onboard its ships. Investors bought into management's optimism -- the stock was down 11% in 2024 before that guidance hike and is now up 5.5% for the year through Tuesday's close, although it has fallen close to 2% in April.
Its peers have struggled more, Carnival is down 20% this year and Norwegian Cruise Line Holdings has fallen 2.5%.
"Despite having positive booking momentum in 2024, the [cruise] stocks have underperformed. The debate around peak cruise and implications of moderating pricing has persisted," Melius Research analyst Conor Cunningham said earlier this month. "Regardless, the cruise upward revisions cycle should continue across the group -- we continue to favor Royal Caribbean," he added.
For the first quarter, analysts surveyed by FactSet are expecting the cruise operator to report adjusted earnings of $1.33 a share on revenue of $3.7 billion. That would be the company's first March-quarter profit since 2019 and a good start to the year.
But it's the company's second-quarter guidance and subsequent commentary around demand and pricing that will tell investors whether the full-year outlook remains on track or if it needs to be altered.
Mizuho analysts, led by Ben Chaiken, initiated coverage of the stock with a Buy rating earlier this month and said first-quarter earnings could be a positive event for the stock.
Chaiken said there was a fear of price deceleration, implied by guidance for the second half of the year from all three cruise operators -- Royal Caribbean, Carnival, and Norwegian. He also flagged a slowdown in price growth for hotel stays across the wider travel industry but said trends in cruises were better than expected, noting it was in an earlier stage of the pandemic recovery than other travel sectors.
"This is in the context of cruise stocks trading on what we feel are implicitly lower estimates, making the setup compelling," he said. He maintained a Buy rating with a price target of $164, implying a 20% upside to Tuesday's closing price.
Royal Caribbean has faced choppier waters so far in 2024 but Thursday's earnings could lead to the smoother sailing ahead.
Write to Callum Keown at callum.keown@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 24, 2024 16:00 ET (20:00 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
Comments