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Bear of the Day: Royal Caribbean Cruises Ltd. (RCL)

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Royal Caribbean Cruises Ltd. (RCL - Free Report) has been hit hard by the coronavirus, with its stock down over 80% in a month. Some might think this massive drop could set up a buying opportunity, but chasing a bottom for this global cruise giant amid the current market turbulence doesn’t seem wise.

Rough Seas

Royal Caribbean is a global cruise firm that controls and operates under four brands, which include its namesake Royal Caribbean International, Celebrity Cruises, and more. The firm is a travel industry powerhouse that had been on a strong run over the last decade. But then the spread of the coronavirus began to scare travelers, and that was a month ago.

 

 

 

 

Since then, the novel coronavirus has been officially declared a pandemic by the World Health Organization. On top of that, large gatherings have been canceled, businesses have closed, and travel has all but halted. This situation is completely out of RCL management’s control. Nonetheless, it forced the firm on March 10 to pull its first quarter and full-year 2020 guidance.

Royal Caribbean also at that time increased its revolving credit capacity by $550 million, “bolstering the company's liquidity.” Then the bombshell dropped on March 14, when RCL announced that it was suspending all of its cruises, citing the “global public health circumstances.”

The firm said it would “conclude all current sailings as scheduled” and noted that it expected to return to service on April 11. Plus, cruise operators were not mentioned as part of the roughly $1 trillion U.S. stimulus proposal.

 

 

 

 

Bottom Line

The first chart shows us just how fast and far Royal Caribbean stock has tumbled. The stock fell another 19% during regular trading Wednesday to close at $22.33 a share—RCL was trading at $135 in January 2020.

The fall has helped make Royal Caribbean’s dividend yield more attractive, resting at 13.97%. But our Zacks estimates call for the company’s adjusted earnings to fall 40% this year. And RCL’s negative earnings revision activity helps it hold a Zacks Rank #5 (Strong Sell) at the moment, alongside fellow cruise firm Norwegian (NCLH - Free Report) .

Eventually, the stock might hit a bottom and demand could climb once Royal Caribbean resumes travel. However, the April timetable is hardly guaranteed. Therefore, it is likely best to wait for ships to actually leave the dock before buying RCL stock.

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