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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) is likely to benefit from improving booking volumes, digital initiatives and fleet expansion efforts. This and the increased focus on Trifecta Program bode well. However, inflationary and supply chain challenges raise concerns.
Let us discuss why investors should hold on to the stock for the time being.
Key Catalysts
Shares of Royal Caribbean have gained 21% in the past three months compared with the industry’s 0.2% growth. The company has been benefitting from strong demand for cruising, relaxation in COVID-related protocols and acceleration in booking volumes. During the third quarter of 2022, booking volumes for 2022 sailings were up 50% from the 2019 levels. During the third quarter, the company reported accelerating demand for sailings in 2023. It stated that booking volumes for 2023 doubled during the third quarter compared with the second quarter of 2022. 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) remains elevated from 2019 levels. As of Sep 30, 2022, the company had nearly $3.8 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 95%), the company expects customer deposits to return to typical seasonality in the upcoming periods.
Image Source: Zacks Investment Research
Royal Caribbean continues using 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 company focuses on new innovative ships and onboard experiences to boost its offering as well as deliver superior yields and margins.
On the supply front, the company is steadfast in increasing its capacity to meet rising demand. Moving into 2023, the company has three ships scheduled for delivery namely — Icon of the Seas, Celebrity Ascent and Silver Nova. The company stated that Icon will have eight distinct neighborhoods and that its stateroom configuration will allow for load factors to be accretive to the overall portfolio. Also, it reported a solid market response in terms of bookings for the ship. The company anticipates the ship to be significantly accretive to its key financial metrics.
During the third quarter of 2022, the company unveiled a three-year financial performance initiative - Trifecta Program, thereby articulating longer-term financial objectives. The program emphasizes financial coordinates, including Adjusted EBITDA per APCD, Adjusted EPS and ROIC, with an intent to achieve it by 2025-end. Under this program, the company expects to achieve a triple-digit adjusted EBITDA per APCD, exceeding the earlier record adjusted EBITDA per APCD of $87 in 2019. The company also expects to achieve double-digit adjusted earnings per share, exceeding the earlier adjusted earnings per share of $9.54 in 2019. Lastly, the company anticipates achieving a return on invested capital in the teens by the end of 2025. The company intends to achieve the metrics on account of its underlying strategies, robust secular and demographic trends, moderate capacity growth, moderate yield growth and strong cost discipline.
Concerns
The leisure industry is currently grappling with the coronavirus crisis and Royal Caribbean isn’t immune to the trend. China, which is closed to international travelers, will continue to hurt cruise operators. Also, it stated that the impacts of COVID-19 (on the shipyards), Russia’s ongoing invasion of Ukraine and other macroeconomic events, have resulted in some delays in expected ship deliveries.
Royal Caribbean has been bearing the brunt of high expenses for quite some time. During the third quarter of 2022, total cruise operating expenses increased 140.4% year over year to $1,956.3 million. The company’s expenses in the quarter primarily stemmed from the resumption of cruise voyages. This and inflationary increases related to fuel and food costs added to the downside. For the fourth quarter of 2022, the company expects net cruise costs (excluding fuel per APCD) to increase by low to mid-single digits compared with 2019. This includes expected transitory costs related to health protocols and one-time lagging costs related to the fleet ramp-up. The company anticipates inflationary and supply chain challenges (mainly related to fuel and food costs) to persist for some time.
Monarch Casino currently has a Zacks Rank #2 (Buy). MCRI has a trailing four-quarter earnings surprise of 9.1%, on average. The stock has gained 21.2% in the past year.
The Zacks Consensus Estimate for MCRI’s 2022 sales and earnings per share (EPS) indicates growth of 21.1% and 29.2%, respectively, from the year-ago period’s reported levels.
Hyatt currently has a Zacks Rank #2. H has a trailing four-quarter earnings surprise of 652.3%, on average. The stock has increased 19.4% in the past year.
The Zacks Consensus Estimate for H’s current financial year sales and EPS indicates a surge of 92.2% and 121%, respectively, from the year-ago period’s reported levels.
Crocs currently has a Zacks Rank #2. CROX has a long-term earnings growth rate of 15%. Shares of Crocs have plunged 39.6% in the past year.
The Zacks Consensus Estimate for CROX’s 2022 sales and EPS indicates a rise of 51.5% and 23.7%, respectively, from the year-ago period’s levels.
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Here's Why Investors Should Retain Royal Caribbean (RCL) Now
Royal Caribbean Cruises Ltd. (RCL - Free Report) is likely to benefit from improving booking volumes, digital initiatives and fleet expansion efforts. This and the increased focus on Trifecta Program bode well. However, inflationary and supply chain challenges raise concerns.
Let us discuss why investors should hold on to the stock for the time being.
Key Catalysts
Shares of Royal Caribbean have gained 21% in the past three months compared with the industry’s 0.2% growth. The company has been benefitting from strong demand for cruising, relaxation in COVID-related protocols and acceleration in booking volumes. During the third quarter of 2022, booking volumes for 2022 sailings were up 50% from the 2019 levels. During the third quarter, the company reported accelerating demand for sailings in 2023. It stated that booking volumes for 2023 doubled during the third quarter compared with the second quarter of 2022. 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) remains elevated from 2019 levels. As of Sep 30, 2022, the company had nearly $3.8 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 95%), the company expects customer deposits to return to typical seasonality in the upcoming periods.
Image Source: Zacks Investment Research
Royal Caribbean continues using 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 company focuses on new innovative ships and onboard experiences to boost its offering as well as deliver superior yields and margins.
On the supply front, the company is steadfast in increasing its capacity to meet rising demand. Moving into 2023, the company has three ships scheduled for delivery namely — Icon of the Seas, Celebrity Ascent and Silver Nova. The company stated that Icon will have eight distinct neighborhoods and that its stateroom configuration will allow for load factors to be accretive to the overall portfolio. Also, it reported a solid market response in terms of bookings for the ship. The company anticipates the ship to be significantly accretive to its key financial metrics.
During the third quarter of 2022, the company unveiled a three-year financial performance initiative - Trifecta Program, thereby articulating longer-term financial objectives. The program emphasizes financial coordinates, including Adjusted EBITDA per APCD, Adjusted EPS and ROIC, with an intent to achieve it by 2025-end. Under this program, the company expects to achieve a triple-digit adjusted EBITDA per APCD, exceeding the earlier record adjusted EBITDA per APCD of $87 in 2019. The company also expects to achieve double-digit adjusted earnings per share, exceeding the earlier adjusted earnings per share of $9.54 in 2019. Lastly, the company anticipates achieving a return on invested capital in the teens by the end of 2025. The company intends to achieve the metrics on account of its underlying strategies, robust secular and demographic trends, moderate capacity growth, moderate yield growth and strong cost discipline.
Concerns
The leisure industry is currently grappling with the coronavirus crisis and Royal Caribbean isn’t immune to the trend. China, which is closed to international travelers, will continue to hurt cruise operators. Also, it stated that the impacts of COVID-19 (on the shipyards), Russia’s ongoing invasion of Ukraine and other macroeconomic events, have resulted in some delays in expected ship deliveries.
Royal Caribbean has been bearing the brunt of high expenses for quite some time. During the third quarter of 2022, total cruise operating expenses increased 140.4% year over year to $1,956.3 million. The company’s expenses in the quarter primarily stemmed from the resumption of cruise voyages. This and inflationary increases related to fuel and food costs added to the downside. For the fourth quarter of 2022, the company expects net cruise costs (excluding fuel per APCD) to increase by low to mid-single digits compared with 2019. This includes expected transitory costs related to health protocols and one-time lagging costs related to the fleet ramp-up. The company anticipates inflationary and supply chain challenges (mainly related to fuel and food costs) to persist for some time.
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 Monarch Casino & Resort, Inc. (MCRI - Free Report) , Hyatt Hotels Corporation (H - Free Report) and Crocs, Inc. (CROX - Free Report) .
Monarch Casino currently has a Zacks Rank #2 (Buy). MCRI has a trailing four-quarter earnings surprise of 9.1%, on average. The stock has gained 21.2% in the past year.
The Zacks Consensus Estimate for MCRI’s 2022 sales and earnings per share (EPS) indicates growth of 21.1% and 29.2%, respectively, from the year-ago period’s reported levels.
Hyatt currently has a Zacks Rank #2. H has a trailing four-quarter earnings surprise of 652.3%, on average. The stock has increased 19.4% in the past year.
The Zacks Consensus Estimate for H’s current financial year sales and EPS indicates a surge of 92.2% and 121%, respectively, from the year-ago period’s reported levels.
Crocs currently has a Zacks Rank #2. CROX has a long-term earnings growth rate of 15%. Shares of Crocs have plunged 39.6% in the past year.
The Zacks Consensus Estimate for CROX’s 2022 sales and EPS indicates a rise of 51.5% and 23.7%, respectively, from the year-ago period’s levels.