Have you been paying attention to shares of Royal Caribbean (RCL)? Shares have been on the move with the stock up 5.3% over the past month. The stock hit a new 52-week high of $258.7 in the previous session. Royal Caribbean has gained 90.9% since the start of the year compared to the 15.5% move for the Zacks Consumer Discretionary sector and the 27% return for the Zacks Leisure and Recreation Services industry.
What's Driving the Outperformance?
The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on October 29, 2024, Royal Caribbean reported EPS of $5.2 versus consensus estimate of $5.05.
For the current fiscal year, Royal Caribbean is expected to post earnings of $11.65 per share on $16.49 billion in revenues. This represents a 72.08% change in EPS on a 18.67% change in revenues. For the next fiscal year, the company is expected to earn $14.42 per share on $18.05 billion in revenues. This represents a year-over-year change of 23.79% and 9.45%, respectively.
Valuation Metrics
Royal Caribbean may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.
On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. Investors should consider the style scores a valuable tool that can help you to pick the most appropriate Zacks Rank stocks based on their individual investment style.
Royal Caribbean has a Value Score of B. The stock's Growth and Momentum Scores are B and A, respectively, giving the company a VGM Score of A.
In terms of its value breakdown, the stock currently trades at 21.2X current fiscal year EPS estimates, which is not in-line with the peer industry average of 23.2X. On a trailing cash flow basis, the stock currently trades at 18.7X versus its peer group's average of 11.2X. Additionally, the stock has a PEG ratio of 0.65. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.
Zacks Rank
We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Royal Caribbean currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Royal Caribbean passes the test. Thus, it seems as though Royal Caribbean shares could have a bit more room to run in the near term.
How Does RCL Stack Up to the Competition?
Shares of RCL have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is Atour Lifestyle Holdings Limited Sponsored ADR (ATAT). ATAT has a Zacks Rank of # 2 (Buy) and a Value Score of B, a Growth Score of A, and a Momentum Score of C.
Earnings were strong last quarter. Atour Lifestyle Holdings Limited Sponsored ADR beat our consensus estimate by 2.63%, and for the current fiscal year, ATAT is expected to post earnings of $1.55 per share on revenue of $980.9 million.
Shares of Atour Lifestyle Holdings Limited Sponsored ADR have gained 9.9% over the past month, and currently trade at a forward P/E of 23.75X and a P/CF of 34.99X.
The Leisure and Recreation Services industry is in the top 10% of all the industries we have in our universe, so it looks like there are some nice tailwinds for RCL and ATAT, even beyond their own solid fundamental situation.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
