On Tuesday, Bernstein maintained a positive outlook on Royal Caribbean Cruises (NYSE: NYSE:RCL) stock, reiterating an Outperform rating with a $290.00 price target. The firm highlighted the cruise operator's significant recovery and cost-efficiency gains post-pandemic.
Royal Caribbean, known for its ~10% return on invested capital (ROIC) and 20% operating margin before the pandemic, has now improved its margins by 5 percentage points and increased its ROIC to 15%, surpassing both the cost of capital and its competitors.
This impressive recovery is reflected in the company's stellar performance, with InvestingPro data showing a remarkable 123% return over the past year and revenue growth of 21.9%.
The analyst noted that Royal Caribbean's industry leadership in ship innovation, particularly with its large family-oriented vessels, is expected to continue driving capacity growth through its Icon (NASDAQ:ICLR) and Oasis class ships, thereby enhancing yields.
The incremental return on this growth is now substantially higher, according to the firm. With a market capitalization of $66.25 billion and a gross profit margin of 48.7%, the company demonstrates strong operational efficiency.
Royal Caribbean's focus on unique private destinations like Perfect Day at CoCoCay is seen as a key differentiator from other cruise offerings, contributing to yield increases through higher ticket prices and greater onshore spending.
The company plans to expand its destination portfolio further, including two Royal Beach Clubs and another Perfect Day location in Mexico, which is anticipated to continue driving yield growth above the industry average.
The firm forecasts robust yield growth, moderate capacity expansion, operating leverage, and cash generation for Royal Caribbean, leading to a mid-high teens total shareholder return (TSR).
Despite these advancements and a fundamental inflection point, Royal Caribbean's stocks are still trading at multiples similar to pre-pandemic levels, presenting what Bernstein views as a favorable investment opportunity.
According to InvestingPro, the stock is currently trading near its Fair Value, with additional analysis and 12+ more ProTips available to subscribers, including insights on the company's financial health score and growth potential.
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