Wall Street is bullish on Royal Caribbean’s new ‘record-busting spectacle’ of a ship

Published Tue, Jan 23 20242:04 PM EST

There's another reason to be bullish on Royal Caribbean , according to several Wall Street analysts. The cruise line held an investor meeting on its newest mega ship, Icon of the Seas, over the weekend and the reaction was positive. The vessel officially debuts Jan. 27. Morgan Stanley analyst Jamie Rollo called Icon of the Seas a "record-busting spectacle of superlatives," and believes it will be a big driver of profits. Icon of the Seas boasts 40 restaurants and bars, six water slides, seven pools, an ice skating rink and a neighborhood designed for families with young children. The company has also added a new adults-only land-based destination, Hideaway Beach, that has an infinity pool, bar, restaurants and cabanas. Rollo's channel checks initially suggested Icon of the Seas would command a 40% ticket price premium to the rest of the Royal Caribbean brand, but that is now exceeding 100%. That implies a 50% yield premium to the broader Royal Caribbean fleet, Rollo wrote in a note Monday. He is also estimating the massive ship is 10% more cost efficient. "This implies Icon is generating ~$220 EBITDA/APCD, over double the group average (nearly triple at the operating income line)," said Rollo, referring to available passenger cruise days (APCD), a measurement of capacity in the cruise industry. Morgan Stanley has an equal weight rating on Royal Caribbean. "This is $0.5bn EBITDA in a full year, over 10% to group EBITDA, over double the ship's capacity share, and singly driving just over half consensus expectations for profit growth in FY24," the analyst wrote. RCL 1Y mountain Royal Caribbean's one-year performance It is also another step by Royal Caribbean to tap into the ongoing trend of multigenerational travel. "RCL seems to have spent a great deal of time understanding how couples, children, teens, families, and ultimately multi-generational families look to enjoy their vacations, both separately and together, and the Icon is the best embodiment of these learnings that we have seen so far," Citi analyst James Hardiman said in a note Monday. He has a buy rating on the stock and a $148 price target, which suggests nearly 17% upside from Monday's close. Meanwhile, JPMorgan believes Royal Caribbean is well-positioned to benefit on a macroeconomic level from rising demand for cruise travel and, on a microeconomic view, from steps it's taken to add new land-based attractions to its megaships and private islands. "Importantly, mgmt. remains focused on continuing to grow its brands in each of the customer segments (= multi-generational travel) and investing in land-based destinations," analyst Matthew Boss wrote in a note Monday. He has an overweight rating on the stock and a price target of $143, implying about 13% upside from Monday's close. UBS analyst Robin Farley said Icon surpasses the capacity and amenities and onboard revenue opportunities of any of Royal Caribbean's previous ships. "Their research shows that families will pull children out of school through the 4th grade, so RCL aims to enhance the shoulder periods between school holidays," she noted. Meanwhile, its new Hideaway Beach added 30% more capacity to Royal Caribbean's private island investment, which has been a significant driver of the cruise lines' ticket price and onboard spending, she pointed out. "RCL will focus on developing the Royal Beach Club in the Bahamas, but we believe that growing its brands will be a priority, furthering our expectation that RCL may announce a new ship order at some point this year," said Farley, who has a buy rating and $140 price target on the stock. — CNBC's Michael Bloom contributed reporting.