Analyst sail into new stock price targets for Royal Caribbean, Norwegian
The people at Royal Caribbean (RCL) hit the trifecta over the summer and they were nowhere near a racetrack.
When horse racing enthusiasts hear the word "trifecta," they think of the bet where you have to predict which horses will finish first, second and third in that exact order.
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However, the term had much different meaning for the cruise line operator, which had made good on its three-year financial performance program — ahead of schedule, no less.
Royal Caribbean said it would deliver triple-digit adjusted Ebitda per APCD (Available Passenger Cruise Day) along with double-digit adjusted-earnings per share and return on invested capital in the teens.
"Today, I'm delighted to share that we have achieved all three trifecta goals on a trailing 12-month basis, 18 months ahead of the schedule," Chief Executive Jason Liberty told analysts during the company's second-quarter earnings call.
"We have seen an incredibly robust booking and pricing environment across all our key itineraries, which is not only setting us up for success in the future periods, but also contributed to the outperformance in the second quarter," Liberty said. He added that the company was reinstating a dividend and raising its full-year guidance.
Norwegian CEO: 'we are witnessing robust demand'
Over at Norwegian Cruise Line Holdings (NCLH) , President and CEO Harry Sommer was equally jubilant about his company's earnings report.
"The second quarter has surpassed our expectations with results exceeding guidance on all key metrics, allowing us to increase our full-year guidance for the third time this year." he said. "We are witnessing robust demand with strong pricing and booking volumes, leading to record-breaking advanced ticket sales."
"This demand, coupled with our on-board offering and high-quality service, has led to strong guest satisfaction for us while we continue to effectively control costs," Sommer added.
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Royal Caribbean shares have doubled (up nearly 102%) from a year ago while Norwegian's stock is up nearly 40%.
Overall, the travel industry is getting its act together after the crippling Covid-19 shutdown four years ago.
"After falling by 75% in 2020, travel is on its way to a full recovery by the end of 2024," the consulting firm McKinsey said in a report released in May.
Domestic travel is expected to grow 3% annually and reach 19 billion lodging nights per year by 2030, the firm said, while international travel should likewise ramp up to its historical average of 9 billion nights over the same time frame,
Spending on travel is expected to follow a similar trajectory with an estimated $8.6 trillion in traveler outlays in 2024, representing roughly 9% of this year's global GDP, McKinsey said.
"Tourism and hospitality are on a journey of disruption," the report said."Shifting source markets and destinations, growing demand for experiential and luxury travel, and innovative business strategies are all combining to dramatically alter the industry landscape."
Truist analyst C. Patrick Scholes raised the firm's price target on Royal Caribbean to $204 from $175 and affirmed a buy rating on the shares as part of a broader research note on cruise lines.
Truist also boosted the price target on Norwegian Cruise Line Holdings to $25 from $21 and maintained a buy rating on the shares.
Analyst: surprise at pace of cruise-pricing acceleration
Following the firm's recent discussions with travel industry executives and gleaning "big data" on future cruise bookings and pricing, the analyst says pricing for first-half 2025 sailings has been accelerating since July, with overall 2025 pricing also “pacing well-ahead of" the Wall Street consensus estimate, Scholes said.
Strong 2025 pricing on the books suggests significant upside to Wall Street's current consensus expectations for cruise stocks, he added.
"This of course assumes no unforeseen adverse circumstances — never a guarantee in this industry," Scholes said.
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Scholes said the most important observation was the very strong acceleration in pricing on booked reservations for first-quarter and second-quarter 2025 departures compared with where pricing was tracking two months ago and, subsequently, how far above consensus expectations cumulative pricing currently is for 2025.
The analyst noted that "not only we were we surprised how much pricing accelerated from our prior observations, so were the travel executives we speak with."
"We expected to see a price increase around two to three months from departure dates, not the five to nine months like we observed over the past two months," he added. "That said, our travel-industry contacts noted they would be very surprised if pricing growth continued to materially accelerate beyond the current levels."
Earlier this month, JP Morgan raised the firm's price target on Royal Caribbean to $213 from $210 and maintained an overweight rating on the shares.
The demand backdrop for cruise remains strong with "zero signs of softening in any lead indicator," the analyst tells investors in a research note after meeting with some management teams in the space.
The firm says booking-curve commentary points to record visibility into fiscal 2025 with notable strength and multiyear pricing power in both Europe and Alaska.
JPMorgan also raised the firm's price target on Norwegian Cruise Line to $25 from $23 while keeping a neutral rating on the shares.
On Sept. 20 Stifel analyst Steven Wieczynski raised the investment firm's price target on rival cruise line Carnival (CCL) to $27 from $25 and affirmed a buy rating on the shares. And Mizuho analyst Ben Chaiken raised his price target on Carnival to $25 from $22, while maintaining an outperform rating.
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