Shares of Royal Caribbean (RCL 6.99%) rallied 16.4% in January, according to data from S&P Global Market Intelligence.
Royal Caribbean actually had a relatively quiet month, stock price-wise, until its Jan. 29 earnings report. On that release, Royal Caribbean missed revenue expectations but met profit expectations; however, its initial 2026 guidance came in stronger than expected, lifting shares significantly over the last two trading days of the month.
NYSE: RCL
Key Data Points
Royal Caribbean sees smooth sailing ahead
In the fourth quarter, Royal Caribbean grew revenue 13.2% to $4.26 billion, slightly missing expectations, while adjusted (non-GAAP) earnings per share rallied 71.8% to $2.80, meeting analyst estimates.
That's impressive growth, though revenue misses and merely "meeting" EPS expectations are usually met with a sell-off, not a rally. Fortunately, forward guidance typically supersedes the results reported in the prior quarter. And in this case, Royal Caribbean provided the goods. Management now expects $17.70 to $18.10 in adjusted EPS for 2026, good for 14.5% earnings growth at the midpoint, and above analysts' estimates of $17.66.
CEO Jason Liberty also noted the company was on track to deliver its Project Perfecta goals laid out in 2024, which call for a 20% annualized EPS growth between 2024 and 2027, with return on invested capital reaching 17% or higher by the end of the period. While the 2026 guidance would only amount to 14.5% growth, that would still put the two-year average growth rate at 23%. Liberty also noted that the company's ROIC had already reached the high teens in 2025.
In addition, Liberty noted that 2026 is two-thirds booked at solid rates, and that Royal Caribbean had seven of the best booking weeks in its history since the last earnings call. Needless to say, management was quite optimistic about the picture moving forward.
Image source: Getty Images.
Royal Caribbean is financially safer than its peers, but more expensive
Royal Caribbean has done a better job of recovering from the pandemic than its other public market peers, with a debt-to-EBITDA ratio below 3.0, which is back under management's target range.
In fact, Royal Caribbean has even begun repurchasing stock, which is fairly surprising given that it is only five years after the end of the pandemic, when cruise companies had to take on lots of debt to bridge them to the post-pandemic era.
The success is owed to Royal's superior adjusted EBITDA margin of 37% over the past 12 months, which is about 10 percentage points better than its publicly traded peers'. The higher margins come from Royal Caribbean's streamlined portfolio of just having three main brands, its investment in owned, private destinations, and its portfolio of high-capacity, high-profit mega-ships.
Of course, Royal does trade at a significant premium valuation to peers Carnival (CCL 7.89%) and Norwegian Cruise Lines (NCLH 4.84%), with a 17.4 times EV-to-EBITDA ratio compared with a Carnival and Norwegian's valuations around 10, so investors are definitely paying up for Royal's higher-quality cash flows.
While Carnival and Norwegian may be riskier, those peers may outperform Royal as the industry recovers from the pandemic with a greater debt paydown and further de-risking from a lower valuation. However, long-term investors who are bullish on the cruising industry may want to concentrate on Royal Caribbean, given its structural advantages and higher-margin business.
