Can Royal Caribbean Stock Keep Going After Last Week's 11% Pop?

By Rick Munarriz Markets

Image source: Royal Caribbean.

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One of last week's biggest winners wasRoyal Caribbean(NYSE: RCL). Shares of the world's second-largest cruise line soared 11.2% on the week, moving higher on strong quarterly results and a rosy outlook on the bookings front. The stock would go on to hit a new 52-week high on Thursday.

Royal Caribbean's good news carried over to its peers. Shares of Carnival (NYSE: CCL) moved 5.6% higher on the week, half of Royal Caribbean's gains. Norwegian Cruise Line (NASDAQ: NCLH) fared even better, soaring 7.6% higher on the week.

Cruising into 2017

Royal Caribbean's growth may not seem so great at first glance. Revenue growth was essentially flat with the prior year's holiday quarter. However, a healthy decline in net cruise costs outside of fuel helped push adjusted earnings 28% higher. The strong showing on the bottom line helped Royal Caribbean extend its annual streak of double-digit earnings growth to four years.

The real reason for the bullish pop in Royal Caribbean's stock is its encouraging outlook. Bookings are running ahead of last year's record high, and passengers booking cruises through Royal Caribbean are doing so at higher rates. Interest in North American passengers for North American and European sailings along with positive trends in Australia and China leave the cruise ship operator in good shape as 2017 plays out.

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Royal Caribbean sees net yields -- a pivotal metric for the cruising industry that consists of revenue after commissions and other expenses per available passenger cruise day -- increasing by 4.5% to 5% on a constant currency basis for the current quarter. Net yields for all of 2017 are expected to clock in with an increase of 4% to 4.5%.

It's hard to impress Wall Street

Royal Caribbean's financial results weren't much of a surprise. Carnival posted similar results last month, and a couple of analysts were issuing bullish notes ahead of last week's report.

The investing waters were lukewarm before that. A pair of analysts who initiated coverage on Norwegian Cruise Lines did so with neutral ratings just before Carnival's report. Sentiment has turned. Carnival and Royal Caribbean hit new 52-week highs on Thursday. Norwegian Cruise Line has yet to overtake last year's springtime highs, but its stock is also moving higher lately.

The only concern for Royal Caribbean shareholders these days is that it's getting harder to outsmart analysts. Royal Caribbean was able to beat Wall Street profit targets in each quarter of 2016, but the margin of victory continued to shrink throughout the year.

Quarter Estimate Actual Surprise
Q1 2016 $0.31 $0.57 84%
Q2 2016 $1.02 $1.09 7%
Q3 2016 $3.10 $3.20 3%
Q4 2016 $1.21 $1.23 2%

Data source: Yahoo! Finance.

The near-term outlook remains bright. Analysts are now raising their estimates for 2017 in light of Royal Caribbean's confidence, and the strength in Carnival's and Royal Caribbean's numbers bode well for Norwegian Cruise Line when it reports next month. These may be challenging times for the travel industry given the geopolitical volatility, but Royal Caribbean and its peers appear to be navigating the choppy seas just fine.

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Rick Munarriz owns shares of Royal Caribbean. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.