Royal Caribbean Soars, But Smooth Sailing Isn’t Guaranteed

Royal Caribbean Cruises Ltd (NYSE: RCL) stock is up more than 10% after the company posted its fourth-quarter and full-year 2024 earnings before the market opened on January 28. Investors are celebrating the company’s optimistic profit outlook for 2025 and the debut of its new Celebrity River Cruises.

The post-earnings surge pushed RCL stock to a new all-time high, blowing past the previous high set in December 2024. The company has been one of the best-performing cruise lines. This latest surge has pushed the stock to a gain of over 115% in the last 12 months. That’s significantly higher than the 22% gain for the S&P 500 in that same period.

That’s impressive growth, but some price action could be due to investors looking for options outside the tech space. That may lead to concerns that the stock is already pricing in a lot of future growth. Therefore, investors will want to get the full picture of what’s happening with RCL stock before chasing the stock at this level.

Earnings Showed the Strength of the Consumer

Quarterly revenue of $3.76 billion was basically in line with expectations for $3.77 billion and was 11% higher than the $3.36 billion it posted in Q4 2023. However, net income of $553 million was nearly double that of the prior year, which came in at $278 million.

The earnings number was the primary force pushing the stock higher. Earnings per share of $1.63 were nearly 10% higher than the consensus estimate of $1.50 and 30% higher year-over-year. This also made it 11 straight quarters that Royal Caribbean has beaten consensus estimates on the bottom line. 

For the full-year 2024, the company achieved EPS of $11.81. The company’s 2025 guidance for full-year EPS puts it in a range of $14.35 to $14.65. The midpoint is higher than the FactSet estimate of $14.45.

The company highlighted stronger pricing on close-in demand (i.e., last-minute demand). The cruise line also says its Wave season is off to a strong start and at a record pace. Wave season occurs in the first quarter of the calendar year when cruise line promotions peak.

Expecting a Boost From River Cruises

The strong performance of Viking Holdings Ltd. (NYSE: VIK) shows that passenger demand for smaller river cruises is rising. Royal Caribbean has invested in that trend with an initial order for 10 ships that will start sailing in Europe in 2027. The company will start accepting bookings later this year. 

The company’s vision aligns with passenger demand. In an interview on CNBC, Royal Caribbean president and chief executive officer (CEO) Jason Liberty remarked that 50% of the company’s customer base desires river cruises. By leaning into that market, the company hopes to keep those passengers within what Liberty terms the company’s “ecosystem,” which is already enhanced by a solid loyalty program.

Analysts Are Raising Their Price Targets

Adding to Royal Caribbean's bullish outlook is the trend of analysts raising their price targets. Currently, MarketBeat reports a consensus price target of $252.31, reflecting increased optimism since the company’s last earnings report in October 2024.

On the morning of Royal Caribbean’s report, Wells Fargo & Co. (NYSE: WFC) reiterated its Overweight rating for RCL stock while raising its price target from $232 to $272. Earlier in January, JPMorgan Chase & Co. (NYSE: JPM) raised its price target from $253 to $290.

Why Things Could Get Choppy for RCL Stock

Any time a cyclical stock advances as high as Royal Caribbean has, it’s a good time to consider if the momentum can continue. There was a lot to like in the company’s earnings report, but there’s also reason for caution. 

For example, the company’s earnings projections likely factor in lower fuel costs. That’s a good bet if the Trump administration can make good on its efforts to get oil companies to expand their drilling capacity. However, there’s likely to be some pushback from the major oil companies, which have already increased output significantly.

It’s fair to wonder how much of a benefit the company could get. Fuel costs dropped dramatically between 2022 and 2023. However, they remained pretty much the same in 2024 as in 2023.

Another potential headwind could be the overall economy. Royal Caribbean caters to a more affluent consumer that may not be as impacted by the broader economy as much as other consumer discretionary stocks. However, after two exceptional years, it’s more likely than not that some form of mean regression will occur. If demand begins to lag at a time when the company is increasing its capital expenditures, it could impact the company’s earnings outlook.