On Tuesday, Bernstein initiated coverage on Royal Caribbean Cruises (NYSE:RCL) stock with an Outperform rating and a price target of $290. Bernstein's analysis points to the cruise operator's strong position in the industry, especially following the challenges of the Covid-19 pandemic.
According to Bernstein, Royal Caribbean has not only recovered but has also extended its lead as a top operator in the cruise sector. The firm highlights the company's improved return on invested capital (ROIC), which has increased from 10% in 2019 to 15%. Additionally, Royal Caribbean's EBIT margins have expanded by over 5 percentage points from 2019, now standing above 25%.
The firm anticipates an upcoming inflection point in free cash flow for Royal Caribbean, which is expected to contribute to an attractive earnings per share (EPS) and cash return narrative. Bernstein credits Royal Caribbean's strategic approach, which includes modest capacity growth, yield growth, and cost discipline as key factors in driving the company's financial performance.
Royal Caribbean's investment in new ships and exclusive destinations, such as Perfect Day and Royal Beach Club, are also seen as positive influences on yield growth, potentially outpacing the wider industry.
Bernstein also notes that with the US market driving industry growth, Royal Caribbean's brand popularity among American travelers positions it well to capitalize on this demand.
Lastly, Bernstein emphasizes Royal Caribbean's diversified brand strategy across various price points and segments, along with a competitive advantage in ship hardware, as differentiators from its peers in the cruise industry.
InvestingPro Insights
Royal Caribbean's strong performance, as highlighted by Bernstein, is further supported by real-time data from InvestingPro. The company's revenue growth of 21.88% over the last twelve months and an impressive operating income margin of 25.44% align with Bernstein's observations on improved financial metrics.
InvestingPro Tips reveal that Royal Caribbean is trading at a low P/E ratio relative to its near-term earnings growth, with a PEG ratio of just 0.14. This suggests the stock may be undervalued considering its growth prospects. Additionally, the company's strong return over the last year, with a price total return of 130.69%, reflects the market's positive sentiment towards Royal Caribbean's recovery and growth strategy.
It's worth noting that Royal Caribbean's stock is trading near its 52-week high, with the current price at 98.41% of the 52-week high. This aligns with Bernstein's optimistic outlook and price target of $290.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Royal Caribbean, providing a deeper understanding of the company's financial health and market position.
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