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Here's Why Investors Should Retain Royal Caribbean (RCL) Now
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Royal Caribbean Cruises Ltd. (RCL - Free Report) will likely benefit from digital initiatives and sequential booking improvement. Also, emphasis on capacity growth initiatives bodes well. However, the increased cost of operations and geopolitical tensions raise concerns.
Let us discuss why investors should hold on to the stock for the time being.
Key Catalysts
Royal Caribbean continues to use digital tools for marketing, product development and enhancing the consumer experience. These include revamped websites, new vacation packaging capabilities, support for mobile apps and increased bandwidth onboard to help its guests remain well-connected while at sea. With busier customers preferring more digital devices that help to save time, the introduction of superior Internet bandwidth and online check-in accompanied by radio-frequency identification technology should continue to increase occupancy.
Royal Caribbean introduces new technological capabilities under its Project Excalibur. The company rolled out a smartphone app to increase convenience and better serve guests. The app is so broadly deployed that more than 60% of Royal Caribbean’s current guests can avail of it. Apart from industry-wide trends, several unique factors boost the company’s numbers. Streaming WiFi and customized destination experiences, as well as other ship upgrades, are also paying off.
Sequential improvements in booking activities have been aiding the company. During the second quarter, booking volumes for 2022 sailings were up 30% from the 2019 levels. The company noted better than expected load factors, owing to a rise in close-in bookings. It also stated that pricing (including and excluding FCCs) for the second half of 2022 remains elevated from 2019 levels. The company reported a rise in pre-cruise onboard purchases (at higher prices) on a year-over-year basis. As of Jun 30, 2022, the company had nearly $4.2 billion in customer deposits. During the quarter, the company witnessed a rise in new bookings and fewer FCC redemptions. Given the full fleet resumption and load factors (at approximately 90%), the company expects customer deposits to return to typical seasonality in the upcoming periods.
On the supply front, the company is steadfast in increasing capacity to meet rising demand. As of Jun 30, 2022, the company had 10 ships scheduled for delivery through 2027. This apart, the company agreed with Chantiers de l'Atlantique to build an additional Edge-class ship (for delivery in 2025), which is contingent upon the completion of conditions precedent and financing.
Concerns
Image Source: Zacks Investment Research
Shares of Royal Caribbean have declined 27.4% in the past three months compared with the industry’s 13.3% fall. The dismal performance was mainly due to the coronavirus crisis. Although demand for the Europe season has been strong over the past three months, the company anticipates combining COVID-19 and the Russia-Ukraine war to affect operations during the third quarter of 2022.
Higher-than-anticipated load factors, timing and investment in revenue-generating activities further add to the company’s costs. During the second quarter of 2022, total cruise operating expenses came in at $1,690.9 million compared with $424.8 million reported in the prior-year quarter. The company anticipates incurring a net loss in the second half of 2022 owing to an increase in fuel rates, interest rates and foreign exchange rates.
Marriott Vacations sports a Zacks Rank #1. VAC has a trailing four-quarter earnings surprise of 13.9%, on average. The stock has declined 6.6% in the past year.
The Zacks Consensus Estimate for VAC’s current financial year sales and EPS indicates an increase of 19.7% and 131.4%, respectively, from the year-ago period’s reported levels.
Marriott carries a Zacks Rank #2 (Buy). MAR has a trailing four-quarter earnings surprise of 18.6%, on average. The stock has increased 15.7% in the past year.
The Zacks Consensus Estimate for MAR’s current financial year sales and EPS indicates growth of 46.7% and 102.8%, respectively, from the year-ago period’s reported levels.
Choice Hotels carries a Zacks Rank #2. CHH has a trailing four-quarter earnings surprise of 11.2%, on average. The stock has declined 4.9% in the past year.
The Zacks Consensus Estimate for CHH’s current financial year sales and EPS indicates growth of 21.9% and 19.6%, respectively, from the year-ago period’s reported levels.
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Here's Why Investors Should Retain Royal Caribbean (RCL) Now
Royal Caribbean Cruises Ltd. (RCL - Free Report) will likely benefit from digital initiatives and sequential booking improvement. Also, emphasis on capacity growth initiatives bodes well. However, the increased cost of operations and geopolitical tensions raise concerns.
Let us discuss why investors should hold on to the stock for the time being.
Key Catalysts
Royal Caribbean continues to use digital tools for marketing, product development and enhancing the consumer experience. These include revamped websites, new vacation packaging capabilities, support for mobile apps and increased bandwidth onboard to help its guests remain well-connected while at sea. With busier customers preferring more digital devices that help to save time, the introduction of superior Internet bandwidth and online check-in accompanied by radio-frequency identification technology should continue to increase occupancy.
Royal Caribbean introduces new technological capabilities under its Project Excalibur. The company rolled out a smartphone app to increase convenience and better serve guests. The app is so broadly deployed that more than 60% of Royal Caribbean’s current guests can avail of it. Apart from industry-wide trends, several unique factors boost the company’s numbers. Streaming WiFi and customized destination experiences, as well as other ship upgrades, are also paying off.
Sequential improvements in booking activities have been aiding the company. During the second quarter, booking volumes for 2022 sailings were up 30% from the 2019 levels. The company noted better than expected load factors, owing to a rise in close-in bookings. It also stated that pricing (including and excluding FCCs) for the second half of 2022 remains elevated from 2019 levels. The company reported a rise in pre-cruise onboard purchases (at higher prices) on a year-over-year basis. As of Jun 30, 2022, the company had nearly $4.2 billion in customer deposits. During the quarter, the company witnessed a rise in new bookings and fewer FCC redemptions. Given the full fleet resumption and load factors (at approximately 90%), the company expects customer deposits to return to typical seasonality in the upcoming periods.
On the supply front, the company is steadfast in increasing capacity to meet rising demand. As of Jun 30, 2022, the company had 10 ships scheduled for delivery through 2027. This apart, the company agreed with Chantiers de l'Atlantique to build an additional Edge-class ship (for delivery in 2025), which is contingent upon the completion of conditions precedent and financing.
Concerns
Image Source: Zacks Investment Research
Shares of Royal Caribbean have declined 27.4% in the past three months compared with the industry’s 13.3% fall. The dismal performance was mainly due to the coronavirus crisis. Although demand for the Europe season has been strong over the past three months, the company anticipates combining COVID-19 and the Russia-Ukraine war to affect operations during the third quarter of 2022.
Higher-than-anticipated load factors, timing and investment in revenue-generating activities further add to the company’s costs. During the second quarter of 2022, total cruise operating expenses came in at $1,690.9 million compared with $424.8 million reported in the prior-year quarter. The company anticipates incurring a net loss in the second half of 2022 owing to an increase in fuel rates, interest rates and foreign exchange rates.
Zacks Rank & Key Picks
Royal Caribbean has a Zacks Rank #3 (Hold), at present. You can see the complete list of today’s Zacks #1 Rank (Strong buy) stocks here.
Some better-ranked stocks in the Zacks Consumer Discretionary sector are Marriott Vacations Worldwide Corporation (VAC - Free Report) , Marriott International, Inc. (MAR - Free Report) and Choice Hotels International, Inc. (CHH - Free Report) .
Marriott Vacations sports a Zacks Rank #1. VAC has a trailing four-quarter earnings surprise of 13.9%, on average. The stock has declined 6.6% in the past year.
The Zacks Consensus Estimate for VAC’s current financial year sales and EPS indicates an increase of 19.7% and 131.4%, respectively, from the year-ago period’s reported levels.
Marriott carries a Zacks Rank #2 (Buy). MAR has a trailing four-quarter earnings surprise of 18.6%, on average. The stock has increased 15.7% in the past year.
The Zacks Consensus Estimate for MAR’s current financial year sales and EPS indicates growth of 46.7% and 102.8%, respectively, from the year-ago period’s reported levels.
Choice Hotels carries a Zacks Rank #2. CHH has a trailing four-quarter earnings surprise of 11.2%, on average. The stock has declined 4.9% in the past year.
The Zacks Consensus Estimate for CHH’s current financial year sales and EPS indicates growth of 21.9% and 19.6%, respectively, from the year-ago period’s reported levels.