Royal Caribbean Group: A Path to Deleveraging

Royal Caribbean Cruise line was founded in Norway in 1968. The company was incorporated in the Republic of Liberia on July 23, 1985. Royal Caribbean Cruise line purchased Celebrity Cruises in 1997 and both brands were kept separate. Royal Caribbean Cruise line became Royal Caribbean International, and a new holding company formed, Royal Caribbean Cruise Ltd. A joint venture with Rest Choice Holidays created Island Cruises, the company’s third line. Further expansion involved Silversea Cruises as well as 50% owner in a joint venture with TUI Cruises and Hapag-Lloyd Cruises. Royal Caribbean key management are experienced in the cruise line industry. The CEO, Jason Liberty, was appointed in 2022 and has served the firm since 2005. Liberty’s former role as CFO oversaw finance, strategy, shared service operations, legal and technology. Naftali Holtz was appointed as the new CFO of Royal Caribbean cruises effective January 2022. Holtz was first employed in 2019 as Senior VP of Finance.

Given current market conditions, estimated growth and analyst forecasts, the estimated value of Royal Caribbean Group is $142.20. The firm is currently undervalued by the market and the recommendation is to buy or hold RCL stock. Royal Caribbean is an established company, expected to grow in future years alongside the cruise line industry. Consumer’s pent up demand post COVID-19 promotes opportunities for Royal Caribbean to perpetuate additional growth inside the industry. Internal and external factors along with shifts in the market for Royal Caribbean Group to be slightly undervalued. There is a significant amount of risk associated with the volatility and cyclicality in the hospitality and Tourism industry due to high interest rates and fear of recession. The Royal Caribbean Group has an upside of 15% our estimates spread from the current price assuming stable economic conditions and continued revenue growth into the future. A downside of 23% is reflected in the broader risks in the short term due to cash outflows dedicated to consistent growth rates from sales and in potential short-term stock price reaction.

Our research led us to many findings that privy's Royal Caribbean’s valuation. Performing a Quantitative Analysis of Royal Caribbeans Discounted Free Cash Flows (DCF) using various growth rates that accounted for the Weighted Average Cost of Capital (WACC) and financial information from Free Cash Flows (FCF) in the 4–5-year period. Factors such as asset and debt ratios, financial leverage from various operating activities effecting FCF, and peer comparison multipliers regarding industry standards across the Cruise Industry and broader Hospitality and Tourism sector synthesize the appropriate value of RCL. Data was then extrapolated outward to analyze comparative internal and external factors through a wholistic SWOT Analysis, Porter’s Fiver Forces, and ESG reporting affects the market’s understanding of investment worthiness into the profitable cruise line.

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