Key Moments
- Jefferies upgraded Royal Caribbean Cruises Ltd to “buy” from “hold” and lifted its price target to $330 from $305, implying a 17% 12-month upside from the prior close of $282.32.
- The broker now projects 2027 net yield growth of 3.3% versus 2.9% previously, above the 3.1% growth expected by Wall Street analysts.
- Jefferies expects Royal Caribbean’s $3.0 billion joint venture with Sandals to contribute about $159 million of equity investment income in 2027, or $0.59 per share in adjusted earnings.
Upgrade and Valuation Rationale
Jefferies raised its rating on Royal Caribbean Cruises Ltd (NYSE:RCL) to “buy” from “hold” and increased its price target to $330 from $305. The firm stated that its new base case implies a potential gain of 17% over the next 12 months, based on Royal Caribbean’s previous closing share price of $282.32.
The upgrade is driven primarily by a more constructive view on the company’s net yield trajectory. Jefferies now expects 2027 net yields to rise 3.3%, up from its prior estimate of 2.9%. The report noted that this revised outlook sits above the 3.1% 2027 growth rate anticipated by Wall Street analysts.
Drivers of Higher Yield Expectations
Jefferies attributed the stronger yield forecast to three main factors: improved occupancy levels, greater onboard spending, and modest increases in ticket prices. These elements together underpin the more optimistic projection for revenue generation per available berth.
Impact of Sandals Joint Venture
The brokerage highlighted Royal Caribbean’s joint venture with Sandals, described as a $3.0 billion transaction, as a significant contributor to its outlook. Jefferies expects this venture to generate approximately $159 million of equity investment income in 2027, which it equated to $0.59 per share in adjusted earnings.
Importantly, Jefferies stated that its estimates for the joint venture do not yet factor in any cost savings or other benefits from integrating the businesses, saying those advantages should materialize at a later stage.
| Metric (2027) | Previous Jefferies Estimate | New Jefferies Estimate | Consensus / Guidance (if cited) |
|---|---|---|---|
| Net yield growth | 2.9% | 3.3% | 3.1% (Wall Street) |
| Adjusted EPS | $21.04 | $20.80 | $20.33 (Wall Street); ” $20+ ” (company guidance) |
| Adjusted EBITDA | $8.66 billion | $8.70 billion | $8.51 billion (consensus) |
| Fuel expense | $1.25 billion | $1.45 billion | Not stated |
Earnings, EBITDA and Debt Implications
Despite the positive yield dynamics and joint venture contribution, Jefferies acknowledged that incremental debt related to the Sandals deal is a drag on near-term earnings. The firm reduced its 2027 adjusted EPS forecast to $20.80 from $21.04, citing higher depreciation and interest expenses that offset part of the earnings benefit from the transaction.
Even after this reduction, Jefferies’ 2027 adjusted EPS projection remains above Royal Caribbean’s ” $20+ ” guidance as well as the Wall Street consensus of $20.33. The firm also nudged its 2027 adjusted EBITDA estimate higher, to $8.70 billion from $8.66 billion, compared with a consensus estimate of $8.51 billion.
Fuel Cost Pressures and Macro Assumptions
Jefferies flagged fuel as a continuing source of cost pressure. It now models 2027 fuel expense of $1.45 billion, up from a prior estimate of $1.25 billion. The report indicated that fuel prices appear closer to a peak than a trough, while cautioning that conditions in the Middle East remain “fluid.”
The brokerage added that its fuel price assumptions for 2026 and 2027 are set above the 2022 peak following the Russia-Ukraine war, even after accounting for inflation.
Third-Quarter Outlook
For the third quarter, Jefferies projects adjusted earnings of $6.26 per share, slightly reduced from a previous estimate of $6.30, again due to marginally higher depreciation and interest costs. This compares with a consensus forecast of $6.36 and company guidance of $6.31. Jefferies expects third-quarter revenue of $5.58 billion.
| 3Q Metric | Jefferies New Estimate | Prior Jefferies Estimate | Consensus / Guidance |
|---|---|---|---|
| Adjusted EPS | $6.26 | $6.30 | $6.36 (consensus); $6.31 (company guidance) |
| Revenue | $5.58 billion | Not stated | Not stated |
Valuation, Scenarios and Key Risks
On valuation, Jefferies observed that Royal Caribbean is trading at less than 13x its current next-12-month EV/EBITDA and under 12x on its 2027 projections. The report stated that the stock has “rarely been cheaper since March 2025.” Reflecting the improved outlook, Jefferies lifted the multiple used in its price target calculation to 12.5x from 12x.
The firm called Royal Caribbean its “best buy heading into the quarter.” It outlined a downside scenario of $191 per share and an upside scenario of $460 per share. Among the main risks, Jefferies cited debt management, the company’s expansion into river cruising, and global deployment of its fleet.
Other Cruise and Expedition Names Covered
In the same report, Jefferies reiterated a “hold” rating on Norwegian Cruise Line Holdings with a price target of $17. It maintained a “buy” rating on Viking Holdings with a $112 target. The firm also raised its price target on Lindblad Expeditions to $32 from $29, while keeping a “hold” recommendation.
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