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Price: $336.98
Discount category: Far above intrinsic value
Next earnings: 2027-01-28
Next earnings is estimate: Yes
Company name: Royal Caribbean Group
Sector: Cruise lines
About: Royal Caribbean Group is one of the largest cruise companies in the world. It owns three cruise brands, Royal Caribbean, Celebrity Cruises and Silversea, and it has a 50% share in TUI Cruises, which operates the Mein Schiff and Hapag-Lloyd brands. Together these brands operate 71 ships that sail to more than 1,000 destinations. The group also owns private destinations in its Perfect Day and Royal Beach Club collections, and it will start river cruises in 2027 with Celebrity River Cruises. Total revenue was $17.9 billion in 2025. In Q3 2026, revenue was $5.59 billion and the ships carried 2.7 million guests. The head office is in Miami, Florida, and Jason Liberty is its chairman and chief executive officer.
Thesis: Royal Caribbean trades at a premium because investors pay for strong demand, high margins and fast earnings growth. Adjusted EPS rose to $15.64 in 2025, and the company expects $17.85 to $17.95 for 2026. Its Perfecta program targets 20% yearly growth in adjusted EPS from 2024 to 2027 and a return on invested capital of 17% or more, and the company says that it remains on track for adjusted EPS of $20 or more in 2027. Investors also pay for new ships, private destinations and a loyalty program that bring guests back. For the premium to be earned, three things must be true. Net yields must keep rising in 2027 while capacity grows about 4.5%, and the company said that 2027 bookings are ahead of past levels at higher prices. Costs, mainly fuel, must stay under control: fuel cost $347 million in Q3 2026, up from $297 million a year earlier. The balance sheet must carry ship orders of about $19.4 billion and the purchase of 50% of Sandals and Beaches Resorts for about $3 billion without a large rise in debt. The premium can shrink if consumers spend less on travel, if geopolitical events change itineraries again, or if fuel prices rise more. The Q4 2026 report, expected in late January 2027 with the first 2027 guidance, is the next test.
Risks: Cruise demand depends on how much consumers spend on travel. A recession, a health crisis or a security event can cut bookings and prices quickly. Geopolitical events changed some itineraries in 2026. Bookings for Mediterranean and West Coast of Mexico itineraries slowed in March and early April 2026, and TUI Cruises had lower results from Middle East itineraries. Fuel cost $966 million in the first nine months of 2026. Swaps hedge 58% of the expected fuel use for 2026 and 53% for 2027, so higher fuel prices still reduce profit. Debt was $22.36 billion at September 30, 2026, ships on order cost about $19.4 billion, and the Sandals purchase adds about $3 billion. Higher interest rates or weaker cash flow can slow buybacks and dividend growth. The Sandals and Beaches partnership takes the group into all-inclusive resorts, a new type of business for it. If the resorts grow more slowly than planned, the return on about $3 billion can be low.
Balance sheet: Cash: $851M Debt: $22.4B Net debt: $21.5B Interest cover: 5.4× Undrawn credit line: $6.6B, to October 2028 Debt due within 12 months: $2.2B Royal Caribbean funds its ships mainly with unsecured notes and term loans, and committed financing with sovereign guarantees covers about 80% of the cost of the ships on order. Total debt was $22.36 billion at September 30, 2026: $2.24 billion is due within one year and $20.12 billion is long-term. Cash was $851 million, and the unsecured revolving credit facilities of $6.6 billion had no borrowings, so liquidity was $7.4 billion. Half of the revolving commitments mature in October 2028 and half in October 2030. Scheduled debt maturities are $0.6 billion for the rest of 2026, $2.4 billion in 2027 and $3.2 billion in 2028. Interest cover is operating income divided by interest expense for the first nine months of 2026 ($4.34 billion against $805 million). In August 2026, the company issued $1.25 billion of 5.550% notes due 2034, and in October 2026 it added a $400 million delayed-draw term loan from Export Development Canada. A $3 billion 364-day term loan is available only for the Sandals purchase. In the first nine months of 2026, the company paid $1.08 billion of dividends and $1.04 billion for buybacks, and $805 million of buyback authority remained. There were 267,470,925 shares outstanding on October 23, 2026. As of 2026-09-30.
Checkpoints: Oct 27, 2026: Q3 2026 results and 2026 guidance. Passed. Watch: Adjusted EPS above a year earlier and kept or higher 2026 guidance pass; lower guidance fails. Outcome: Adjusted EPS rose to $6.57 from $5.75, and the company raised its 2026 adjusted EPS guidance to $17.85 to $17.95. Jan 28, 2027 (estimate): Q4 2026 results and 2027 guidance. Pending. Watch: 2026 adjusted EPS within or above $17.85 to $17.95 and 2027 guidance of $20 or more pass; guidance below $20 or falling yields fail. Mar 2027 (estimate): Close of the Sandals and Beaches purchase. Pending. Watch: A close in early 2027 with permanent financing and no large rise in leverage passes; a delay or a much higher cost fails.
Recent events: 2026-10-27: Royal Caribbean reported Q3 2026 results. Revenue rose 9% to $5.59 billion, and net yields rose 0.9%. Net income was $1.73 billion, or $6.45 per share, and adjusted EPS was $6.57, up from $5.75. The company raised its 2026 adjusted EPS guidance to $17.85 to $17.95 from $17.73 to $17.87. It said that booking volumes rose in the mid-teens since its last call, with bookings for 2027 sailings up in the high teens. In October 2026, it added a $400 million delayed-draw term loan from Export Development Canada. 2026-09-23: Royal Caribbean agreed to buy a 50% equity interest in Sandals and Beaches Resorts for about $3 billion. The resorts include 18 all-inclusive resorts in the Caribbean and three resorts under development. The company will use the equity method for the investment and expects the deal to close in early 2027. It arranged a $3 billion 364-day term loan that it can use only for this purchase. 2026-08-20: Royal Caribbean issued $1.25 billion of 5.550% senior notes due 2034. It used the money to repay part of its floating-rate term loans and other debt. 2026-07-28: Royal Caribbean reported Q2 2026 results. Revenue rose 6% to $4.8 billion. EPS was $4.20, down from $4.41, and adjusted EPS was $4.21, down from $4.38. The company raised its 2026 adjusted EPS guidance to $17.73 to $17.87. Legend of the Seas, the third ship of the Icon class, started service in July 2026. 2026-04-30: Royal Caribbean reported Q1 2026 results. Revenue rose 11% to $4.5 billion. EPS was $3.48 and adjusted EPS was $3.60. The company bought back $836 million of shares in the quarter. It lowered its 2026 adjusted EPS guidance to $17.10 to $17.50 because of higher fuel costs and the effect of geopolitical events on Middle East itineraries of TUI Cruises. 2026-01-29: Royal Caribbean reported 2025 results. Total revenue was $17.9 billion, EPS was $15.61 and adjusted EPS was $15.64. Q4 2025 adjusted EPS was $2.80, up from $1.63. The company gave 2026 adjusted EPS guidance of $17.70 to $18.10 and announced the new Discovery Class of ships and 10 more ships for Celebrity River Cruises.