Key Takeaways
- Two Wall Street giantsāDeutsche Bank and Bank of Americaāelevated Royal Caribbean (RCL) to Buy ratings this Monday.
- RCL shares have tumbled 26% from their August 5 peak, creating what analysts see as an attractive entry point.
- Tigress Financial maintained its Buy stance, highlighting the strategic Sandals Resorts collaboration.
- The cruise industry faces a critical test as Carnival (CCL) prepares to unveil Q3 results on Tuesday.
- Wall Street forecasts show Carnival’s adjusted EPS declining to $1.35 from last year’s $1.43.
Shares of Royal Caribbean (RCL) edged marginally lower to $242.43 during Monday’s session, following a 1.6% Friday advance that closed at $242.70. The modest retreat occurred as two prominent financial institutions adopted a bullish stance on the cruise operator ahead of competitor Carnival’s quarterly financial disclosure.
Royal Caribbean Cruises Ltd., RCL
Both Deutsche Bank and Bank of America elevated their positions on Royal Caribbean to Buy on Monday. Each institution emphasized the substantial price correction since early August as creating a more favorable risk-reward scenario for investors.
Since reaching its August 5 high, Royal Caribbean shares have experienced a 26% decline. The stock now sits approximately 13% below where it started the year and has dropped beneath both its 50-day and 200-day moving average lines.
Deutsche Bank maintained its $299 price objective while noting that the recent downturn offers investors a more compelling opportunity compared to earlier in 2024.
Bank of America’s Andrew Didora advanced his recommendation from Neutral to Buy and established a $330 price objective. In his client communication, he characterized Royal Caribbean as a “high quality business.”
Catalysts Behind the Bullish Shift
Didora highlighted the company’s strategic investment in Sandals Resorts as a significant expansion opportunity. His analysis suggests the partnership could contribute an additional $900 million in Ebitda by decade’s end.
“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 added its voice on Monday, maintaining its Buy recommendation while keeping its $425 price objective intactārepresenting the most optimistic target among the firms discussed.
Tigress emphasized that the Sandals and Beaches Resorts collaboration enhances Royal Caribbean’s competitive position in the worldwide leisure travel market. The firm characterized the stock’s recent weakness as presenting a compelling long-term accumulation opportunity.
According to the firm’s analysis, RCL currently trades at a P/E multiple of 15.01 and appears undervalued relative to its fair value calculation. This assessment draws from InvestingPro’s valuation model.
Tigress further noted that the Sandals transaction brings premium resort revenue streams at approximately 10 times Ebitda. The firm anticipates the partnership will enhance customer retention and increase lifetime customer value progressively.
Carnival’s Quarterly Results Cast Shadow Over Industry
Carnival (CCL) will release its third-quarter financial performance before Tuesday’s market open. Analyst consensus calls for adjusted earnings of $1.35 per share, representing a decline from the prior year’s $1.43.
Top-line growth is projected at 3%, reaching $8.39 billion, based on FactSet data. Carnival shares declined 0.6% to $22.10 in Monday trading.
The cruise sector has navigated challenging conditions throughout 2024. Elevated fuel expenses linked to U.S.-Iran tensions, a hantavirus outbreak concern, and consumer preference for shorter-distance travel have all pressured financial performance.
Energy costs represent the most significant variable. Diplomatic negotiations between the United States and Iran to resolve the ongoing conflict remain inconclusive.
Peer cruise companies also experienced Monday declines. Norwegian Cruise Line (NCLH) and Viking Holdings (VIK) each fell approximately 1.5%.
Additional analysts have adopted increasingly favorable views on Royal Caribbean in recent weeks. JPMorgan increased its price objective to $394 while maintaining an Overweight rating, pointing to favorable yield trends.
Bernstein SocGen reaffirmed an Outperform rating alongside a $355 target. UBS maintained its Buy rating and $367 objective following encouraging preliminary data from Royal Caribbean’s joint venture partner, TUI Cruises.
TUI disclosed a 12% increase in capacity utilization and a 2% improvement in daily passenger rates for the September quarter. Goldman Sachs similarly reaffirmed its Buy rating with a $360 price target on Royal Caribbean shares.
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