Shares of Royal Caribbean (NYSE: RCL) led cruise stocks higher with a 10% pop on Monday, following a well-received earnings report to begin the new week of trading. There’s still a long way to go for Royal Caribbean, Norwegian Cruise Line Holdings (NASDAQ: NCLH), en Carnival (NYSE: CCL) (NYSE: CUK) claw their way out of the year-to-date share loss that investors have had to endure, but there are some promising signs that Royal Caribbean – at least – is starting to steer in the right direction.
Even what may seem like a bit of bad news on Tuesday morning at first – an analyst lowering its price target in advance – is actually quite positive. Steven Wieczynski of Stifel Financial lowers its price target on the stock from $ 85 to $ 72, but even the new mark represents 26% of the upside from close to Monday. Wieczynski remains bullish on Royal Caribbean stock, under the impression of both its healthy liquidity levels and stimulating booking trends as we look forward to next year.
Image Source: Royal Caribbean.
Sail in 2021
There is no denying that sentiment is just uninspiring for the cruise line sector. Carnival, Royal Caribbean, and Norwegian have stopped revenue-generating sails since March, shortly after the COVID-19 crisis washed up on our shores. Other travel segments, including airlines, hotel companies, and car rental agencies scaled back their businesses without shutting down completely, but you will not sail a cruise ship to the state until early November.
The first concern with the sector was if it could survive. Media outlets have highlighted the number of on-board COVID-19 cases for both passengers and crew members and the ease with which a highly contagious virus can spread on a cramped cruise ship. The sector will have a lot of public opinion to reshape when it is back in business. The good news is that there is little doubt that Royal Caribbean will stay in business.
Royal Caribbean has raised roughly $ 6.5 billion since announcing the suspension of its global operations. It had $ 4.1 billion in liquidity at the end of June. Royal Caribbean’s cash-burning rate rises from $ 250 million to $ 290 million. Even if it does not raise new funds, it should be good for at least a year. If cruise ships do not sail next summer, we are likely to have bigger problems than concerns about the financial stability of a cruise line.
Weiczynski, for one, recently saw no capital increase at Royal Caribbean. At present, Royal Caribbean is focusing on a safe return to business. The sector was naive at first. Carnival, Royal Caribbean, and Norwegian had initially canceled the first few weeks of cruises through March and April. The line in the seven sign recently for a refund at the end of October finds that key players are taking a more conservative stance than the Centers for Disease Control and Prevention’s no-sail mandate.
Royal Caribbean owned the cruise line before the pandemic. It has placed historically strong growth and higher profit margins than its two publicly traded peers. There is no reason why leadership on margin and revenue growth should change as we sail again.
Sentiment is already starting to become positive in the eyes of cruise-free consumers. Much of the initial booking activity through March and April was people of canceled sailings with their improved cruise credits on future sailings. Since mid-May, Royal Caribbean has seen new reservations for more than 60% of its total bookings. Reservations through the first quarter of next year are running smoothly at Royal Caribbean, but things will be robust as we approach next summer, such as the second half of 2021.
Many, of course, are pushing for the neutralization of COVID-19 and a smooth recovery from the global recession. Now, however, Royal Caribbean has enough money to feed the meter, time is his ally instead of his enemy.
