Good Entry Point for Royal Caribbean (RCL)? Not Just Yet, Says Analyst

Barring the airline industry, it is hard to think of a sector more badly punished by the coronavirus than cruise ship operators. Companies that only a year ago were reliable money spinners have now resorted to extreme measures just to say a float until the pandemic fades from view.

Royal Caribbean (RCL) has been a prime victim. The halt on sailings has burnt a hole in the keel and the company has taken on loans and various liquidity boosts to shore up the balance sheet.

The latest of which was last week’s announcement of a $500 million share offering alongside the sale of $500 million senior convertible notes due 2023.

The majority of the proceeds will go toward business operations, although a chunk of the notes offering will be used to pay off the company’s $300 million of 2.65% senior notes due this year.

However, 2020’s suffering investors were not happy with the additional share dilution and sent the stock down by 13% following the announcement.

For William Blair analyst Sharon Zackfia, the coffer-padding initiative provides RCL with an extended lifeline.

“Assuming the stock and notes offerings are successful and a 50% potential refund scenario for deposits for canceled voyages (similar to the last six months), we estimate Royal has adequate liquidity to sustain operations for at least eight months in a zero revenue environment ($1.3 billion in maturities are due in 2021),” Zackfia said.

Although there has been an uptick in bookings for 2021 over the past two months, except for itineraries out of Hong Kong, all of Royal’s sailings are still on hold until the end of November.

Still, with the CDC’s no-sail order expiring at the end of October, the company is hopeful it can resume cruises in 2020.

However, “given limited visibility on the pace of recovery because of uncertainty on the timing of a resumption of sailing,” Zackfia rates RCL shares a Market Perform (i.e. Hold), without suggesting a price target. (To watch Zackfia’s track record, click here)

Overall, based on an evenly split 6 Buys and Holds, each, and an additional 2 Sells, RCL has a Moderate Buy consensus rating. However, based on the $60.45 average price target, shares are poised to stay range-bound for now. (See RCL stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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