With lockdowns gradually easing across the globe, vaccine programs making progress and a sense of normality edging closer, is the tide turning in favor of ailing cruise operator Royal Caribbean (RCL)?
Not quite, according to Deutsche Bank analyst Chris Woronka.
“Even though conditions may appear to be incrementally favorable to the resumption of cruising (on a limited basis) sometime this summer, we believe the stock is already reflecting a healthy dose of optimism about the trajectory of an expected multi-year recovery,” Woronka said.
The optimism highlighted by Woronka has been reflected in the market, with shares up 43% over the last eight trading sessions.
The cruise line has taken measures to steady the balance sheet, including cap-ex reductions and cost cutting initiatives, as well as a $3.3 billion loan which should support the company at least through next February, should the industry remain shuttered.
That worst-case scenario is unlikely, with Royal Caribbean aiming to resume operations by August 1.
However, looking ahead, bookings for the rest of the year are well behind last year’s numbers. Further down the line, 2021 bookings are down too, although within “historical ranges.” On the plus side, booking figures have picked up recently, while 2021 cancellations have not reached an “abnormal level.”
That being said, Woronka points out that even with cruises back in action by the summer, these vacations will likely be a more “restrictive experience,” with social distancing measures in place, possibly putting off consumers’ appetite for the cruise experience.
Ultimately, the “primary driver of the stock” in the months ahead, will be positive developments regarding a COVID-19 vaccine. In the meantime, the analyst does not think there will be “a sufficient level of sailings from which to derive any meaningful forward-looking conclusions.”
To this end, Woronka reiterated a Hold recommendation on RCL and reduced the price target from $38 to $36. Investors will be looking at 27% downside, should the target be met over the next year. (To watch Woronka’s track record, click here)
What does the rest of the Street have in mind for RCL over the next 12 months? 9 Buys, 5 Holds and 1 Sell coalesce into a Moderate Buy consensus rating. The bulls are in charge, however, as the average price target is $56.67 and indicates possible upside of 32.5%. (See Royal Caribbean stock analysis on TipRanks)
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