It’s time for the world’s most valuable cruise operator – in terms of market capitalization and enterprise value – to offer new financial data. Royal Caribbean Cruises (RCL -1.05%) will step up its third-quarter report Tuesday morning.

Expectations are high for the company with a fleet of 68 vessels across five different brands. Stocks hit a record high this month, having more than quadrupled since the start of last year. This type of rise can make a stock susceptible to a fall if the company doesn’t deliver a stellar performance, but there are very good reasons to expect a good week from Royal Caribbean.

1. Make waves during earnings season

Royal Caribbean delivered another “beat and raise” performance three months ago, once again raising its projections for the full year. Its July guidance for the three months ending in September called for adjusted earnings per share (EPS) of between $4.90 and $5.

Analysts have raised their earnings targets to $5.03 per share, but it’s not a problem to see Wall Street pros coming in above Royal Caribbean’s own projections. To begin, Royal Caribbean based its expectations on fuel prices, interest rates and exchange rates at the time. Fuel prices and interest rates have fallen slightly over the past three months. The US dollar index has been trending upward in recent weeks, but remains below its July level.

The momentum also increases the chances of earnings topping on Tuesday. Royal Caribbean’s net returns continue to exceed operating costs, which has led to some pretty significant cases of bottom-line outperformance.

Data source: Yahoo! Finance. EPS = earnings per share.

Royal Caribbean has recorded double-digit percentages since returning to profitability five months ago. The streak will eventually end at some point, but for now, the uptrend is the friend of those who have long been the cruise line operator.

Image source: Getty Images.

2. It was a great summer on the high seas

Rival of Royal Caribbean Carnival (CCL) operates on a different fiscal schedule. Its third quarter ended in August and it released its financial results at the end of September. Carnival saw its revenue and earnings per share increase by 15% and 62%, respectively. ahead of analysts’ expectations at both ends of the income statement.

Carnival is often seen as a bellwether, given its larger fleet and revenue. Royal Caribbean is better valued because it has historically generated superior growth with stronger margins than its peers. A good report on Carnival bodes well for the fundamentally superior Royal Caribbean.

The future looked bright with the Carnival update last month. Customer deposits for future cruises at the end of the busy summer season are 7% higher than the record set a year earlier. If Carnival sees an improvement in demand, it would be a shock to see Royal Caribbean, with its greater brand loyalty, not follow suit.

3. Stock is always cheaper than you think

A stock that has more than quadrupled since the start of 2023 may seem expensive, but that may not be the case. Royal Caribbean raised its forecast at the end of July and expects to generate adjusted earnings of $11.35 to $11.45 per share. Analysts, tired of falling short, have raised their annual models from $11.31 per share to $11.58 per share in adjusted net income over the past three months.

Royal Caribbean now trades at 17 times this year’s projected earnings and less than 15 times next year’s target. Wall Street’s Wile E. Coyote still can’t seem to catch that Road Runner – or Wave Runner, if you will.

Why should analysts finally be aware of the industry’s burgeoning reality? The class act of cruise line stocks is freewheeling and the waters ahead look quite inviting.