Key Takeaways
- Two major banksāDeutsche Bank and Bank of Americaāissued Buy upgrades for Royal Caribbean (RCL) on Monday.
- RCL shares have declined 26% from their August 5 peak.
- Tigress Financial maintained its Buy recommendation, highlighting the potential Sandals Resorts collaboration.
- Carnival (CCL) is scheduled to release its third-quarter results Tuesday, which could impact the broader cruise industry.
- Wall Street forecasts Carnival’s adjusted EPS at $1.35, down from $1.43 in the prior-year period.
Shares of Royal Caribbean (RCL) edged slightly lower to $242.43 during Monday’s session, following a 1.6% gain that pushed the stock to $242.70 on Friday. The modest decline came amid positive analyst action from two prominent financial institutions ahead of Carnival’s closely watched earnings announcement.
Royal Caribbean Cruises Ltd., RCL
On Monday, both Deutsche Bank and Bank of America raised their ratings on Royal Caribbean to Buy. The upgrades were driven largely by the stock’s significant retreat from its summer highs, which analysts believe has created a more favorable entry point for investors.
Since reaching its peak on August 5, Royal Caribbean stock has tumbled 26%. The shares are currently down approximately 13% year-to-date and have dropped beneath both the 50-day and 200-day moving average levels.
Deutsche Bank maintained its $299 price objective while upgrading the stock. The firm noted that the recent weakness offers investors a better valuation than what was available earlier this year.
Meanwhile, Bank of America’s Andrew Didora upgraded his stance from Neutral to Buy and established a $330 price target. In his client note, he characterized Royal Caribbean as a “high quality business” with attractive prospects.
Catalysts Behind the Bullish View
Didora highlighted the company’s strategic investment in Sandals Resorts as a significant growth catalyst. His analysis suggests the partnership could generate approximately $900 million in Ebitda by the end of the decade.
“The macro is a risk, but travel spend has been very strong, estimates seem reasonable, and RCL is well positioned to capture further travel share,” Didora wrote.
Tigress Financial Partners also issued commentary on Monday, reaffirming its Buy recommendation while maintaining its $425 price targetāthe most optimistic forecast among the firms discussed.
Tigress emphasized that the Sandals and Beaches Resorts collaboration enhances Royal Caribbean’s competitive position within the global vacation market. The firm suggested that the stock’s recent weakness presents a compelling entry point for long-term investors.
According to Tigress, RCL is currently trading at a P/E multiple of 15.01, which appears below fair value based on InvestingPro’s valuation metrics.
The firm also noted that the Sandals transaction brings premium resort revenue streams at an attractive 10 times Ebitda multiple. Tigress anticipates the partnership will enhance customer retention and increase lifetime value per guest.
Carnival’s Results Could Set Tone for Industry
Carnival (CCL) is set to announce third-quarter financial results before market open on Tuesday. Analyst consensus calls for adjusted earnings of $1.35 per share, representing a decline from the $1.43 reported in the same quarter last year.
Revenues are projected to increase 3% to $8.39 billion, according to FactSet estimates. Carnival shares declined 0.6% to $22.10 during Monday trading.
The cruise sector has encountered headwinds throughout the year. Elevated fuel expenses linked to the U.S.-Iran tensions, health concerns including a hantavirus outbreak, and shifting consumer preferences toward domestic travel have pressured industry performance.
Fuel cost volatility remains the sector’s primary uncertainty. Diplomatic efforts between the United States and Iran to resolve their dispute continue without resolution.
Other cruise line operators also experienced declines Monday. Shares of Norwegian Cruise Line (NCLH) and Viking Holdings (VIK) each fell roughly 1.5%.
Several other Wall Street firms have recently expressed increased optimism toward Royal Caribbean. JPMorgan elevated its price objective to $394 while maintaining an Overweight rating, pointing to favorable yield trends.
Bernstein SocGen confirmed its Outperform rating with a $355 target price. UBS retained its Buy rating and $367 target following encouraging preliminary results from TUI Cruises, Royal Caribbean’s joint venture partner.
TUI disclosed a 12% increase in capacity alongside a 2% improvement in daily rates for its September quarter. Goldman Sachs also reaffirmed its Buy rating on Royal Caribbean with a $360 price objective.
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