By Teresa Rivas

Shares of Royal Caribbean Group have nearly doubled in the past year -- and there's still reason to like the cut of the stock's jib.

Although demand for travel in general has soared since the pandemic, few areas have been as popular as cruises. All three major cruise lines -- Royal Caribbean, Norwegian Cruise Line Holdings, and Carnival -- are outperforming the broader market over the past year. Cruises often offer better value than land-based vacations, so ongoing demand has boosted earnings.

Yet Royal Caribbean remains the gold standard: It's the only one of the three major players that's surpassed its prepandemic highs, and according to Melius Research analyst Conor Cunningham, it's turning into a compounder -- a high-quality company that can reinvest in its business and outperform over the long-term.

Cunningham is a self-professed "uber cruise bull," as he told Barron's in a summer Q&A, and earlier this week reiterated a Buy rating and $385 price target on Royal Caribbean, writing that "the path for earnings growth is potentially the clearest it's been for Royal in over a decade."

In fact, the Royal Caribbean of today is far different than that of 2020. The company used the Covid-era shutdowns as a chance to reinvest in its fleet and special offerings. Today, it not only has the largest cruise ship in the world, but a number of other state of the art vessels that are on or soon to be on the water, as well as a smattering of private beach clubs coming online that offer passengers exclusive opportunities.

Nor is it stopping there. This spring, Royal Caribbean announced it would enter the river cruise market dominated by upscale Viking Holdings, and Cunningham writes that looking at the long-term, "with Royal having success outside of traditional ocean cruises, there is likely potential for further partnerships within leisure adjacencies (skiing an example that comes to mind)."

Yet even before passengers go from the sea to the slopes, there are reasons to be upbeat about Royal Caribbean's prospects. The consensus forecast among analysts tracked by FactSet calls for earnings per share to jump by nearly a third this year, and more than 17% in 2026.

All of the industry-leading development Royal Caribbean has done hasn't come cheap. Yet now that the bulk of its investments are rolling off, Cunningham notes that free cash flow will no longer be as constrained and can start to ramp up quickly. "With the balance sheet expected to be back to 2.5 times to three times leverage, the need to continue to clean up the balance sheet is somewhat limited," he writes. "Cash returns as a result should start to step up, with the company being opportunistic (but still active) in terms of buying back stock."

Cunningham isn't alone. More than 70% of the 28 analysts tracked by FactSet have a Buy rating or the equivalent on the shares, with an average price target above $362. The stock was up 0.3% at $323.91 on Thursday.

That goes a long way to make its forward price-to-earnings ratio of more than 20 times more palatable -- and means the bull case for the stock is shipshape.

Write to Teresa Rivas at teresa.rivas@barrons.com

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September 19, 2025 21:31 ET (01:31 GMT)

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