Cruise Demand Remains Robust at Royal Caribbean as Consumer Appetite to Travel Intact

We plan to raise our $80 fair value estimate for no-moat Royal Caribbean by a mid-single-digit rate after fourth-quarter results and adjusting our 2023 outlook. Even after a mid-single-digit post-print pop in shares, we view shares as undervalued. Fourth-quarter sales of $2.6 billion were in line with our forecast, and the adjusted EPS loss of $1.12 bested our $1.30 forecast due to well-managed expenses. Operations are nearly back to normal, with Royal posting 95% occupancy and revenue above the fourth-quarter 2019 level, marking the first time for a quarter with sales above prepandemic levels. The key driver in our intrinsic value lift stems from the commentary around positive forward demand, with seven of the largest booking weeks ever occurring since November. Royal is in a strong position, with a cumulative booked position within past ranges at higher prices for 2023 along with more than $4 billion in advance ticket sales.