Royal Caribbean: Only cruise line to consistently beat the S&P 500

Share price and valuation

Royal Caribbean’s (RCL) share price shot up considerably in 2014. RCL was the only company among the three major cruise operators to outperform the S&P 500 index throughout the year. While Royal Caribbean’s share price increased by 75% during the year to $82.43 from $47.2 in the beginning of the year, the S&P index (SPX) increased only by ~10%. During the same period, competitor Carnival Corporations’ (CCL) share price increased by 15%, while Norwegian Cruise Line’s (NCL) share price increased by 33%.

Royal Caribbean’s share price growth was driven by strong earnings growth and investors’ confidence in the company’s future prospects as it aims to increase its return on capital to double digits and to double its 2014 earnings per share by 2017 under its Double-Double Program, announced in 2Q14.

Royal Caribbean: Only cruise line to consistently beat the S&P 500


The positive trend is expected to continue. 2015 bookings are strong and the easing of Cuba travel restrictions will have a positive impact, as it will allow for increased trade and travel between the US and Cuba. Moreover, as of September 2014, the company had eight ships on order to be delivered between 2014 and 2018. Its EV/EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple was 15x—higher than Carnival Corporation’s (CCL) 13x but lower than Norwegian’s (NCL) 17x. Royal Caribbean also provides returns to its shareholders in the form of dividends. Its dividends increased from $0.25 per share to $0.3 per share in 4Q14.

You can participate in the growth of these cruise liners by investing directly in the stocks of these companies or in ETFs such as the PowerShares Dynamic Leisure and Entertainment Portfolio (or PEJ), the PowerShares Dynamic Large Cap Growth Portfolio (PWB), and the Consumer Discretionary Select Sector SPDR Fund (XLY). The benefit of investing in ETFs is to gain exposure to a well-diversified portfolio of stocks.