Freedom Broker: Royal Caribbean stock’s upside potential is nearly exhausted

Freedom Broker analysts maintain a positive view on Royal Caribbean Group (RCL), but after a strong rally in the stock price they believe the potential for further gains is limited. Despite quarterly results beating expectations and a higher full-year forecast, the recommendation was cut to “Hold.” The target price was raised from $320 to $351, which, at the current price of $321,9, implies upside of about 9%.

Royal Caribbean: one of the leaders of the global cruise market

Royal Caribbean Group (RCL) is one of the world’s largest cruise operators. The company runs the Royal Caribbean, Celebrity Cruises and Silversea brands, operates 69 ships, and develops a network of exclusive travel destinations while also expanding its presence in the river-cruise segment.

Report confirms demand strength, but focus shifts to costs

The report reinforces confidence in Royal Caribbean’s long-term competitiveness, the analysts note. However, after a significant rise in the share price, the stock’s investment upside has noticeably diminished, so Freedom Broker is downgrading the rating to “Hold” solely due to valuation rather than any deterioration in the business, the experts explain.

In the second quarter of 2026, the company once again exceeded its own guidance and raised its full-year outlook. The main drivers were resilient demand, record cruise pricing, lower operating costs than expected, and a positive contribution from joint ventures.

Financial results exceeded expectations

Royal Caribbean’s revenue in the second quarter increased 6% year over year to $4,8 billion. Net income totaled $1,1 billion, or $4,20 per share, while adjusted earnings reached $4,21 per share, beating both the company’s own forecast and Freedom Broker analysts’ expectations. Adjusted EBITDA was about $1,8 billion.

The number of passengers carried rose 6% to 2,4 million, and load factor reached 110,2%, remaining at last year’s level. Net yield increased 1,2% in constant currency, exceeding management’s target by 100 basis points.

After reporting results, Royal Caribbean raised its 2026 adjusted EPS guidance to $17,73–17,87 versus the previous range of $17,10–17,50. The company also expects full-year revenue growth of about 9%.

Demand remains strong, digital services boost monetization

In Freedom Broker’s view, the key factor behind the company’s investment appeal remains resilient demand for cruises. Management reported record booking prices and sales volumes exceeding last year’s levels across virtually the entire portfolio. The Caribbean is showing particularly strong performance, while European itineraries face moderate pressure amid ongoing geopolitical tensions.

Another growth driver is the development of the digital platform. More than 90% of guests use the company’s mobile app, and more than half of all purchases of add-on services are paid for before boarding. This increases onboard spending and improves yield management efficiency.

Another positive signal was customer deposits, which reached $6,74 billion, up nearly $1 billion since the start of the year. This provides high visibility into future revenue and confirms that demand remains resilient.

Key risk: rising costs

Despite the strong results, the analysts point to cost dynamics. In the second quarter, non-fuel unit costs increased 3,9% in constant currency, while net yield rose only 1,2%. This gap temporarily pressures margins, although Freedom Broker believes it is largely the result of a calendar effect and dry-docking schedule rather than weakening demand.

The third quarter will be the key test of the investment thesis. The company expects to reduce non-fuel unit costs by 1,1–1,6% while increasing fleet capacity by 8,5%. If this target is met, the scale effect from new ships will once again support profit growth.

Why the rating was lowered

Freedom Broker emphasizes that the change in recommendation is driven solely by the stock’s revaluation.

After the earnings release, Royal Caribbean shares rose significantly, and their upside to the updated target price is now about 9%, consistent with a “Hold” rating. The company nonetheless remains one of the highest-quality assets in the cruise industry thanks to high profitability, strong returns on capital, an effective digital ecosystem, and resilient demand.

Royal Caribbean is expanding активно 

Royal Caribbean continues to actively expand its vacation ecosystem. In June, the company announced the launch of Celebrity River Cruises programs with multi-day excursion itineraries in Europe, and earlier it brought into service the new ship Legend of the Seas, the third Icon-class vessel. In addition, Royal Caribbean is maintaining its capital return program for shareholders: in the second quarter alone, the company allocated more than $600 million to dividends and share buybacks. In May, the company announced quarterly dividends of $1,5 per share.

Not an individual investment recommendation.