TLDR
- Deutsche Bank and Bank of America both upgraded Royal Caribbean (RCL) to Buy on Monday.
- The upgrades follow a 26% drop in RCL stock since August 5.
- Tigress Financial also reiterated its Buy rating, pointing to a proposed Sandals Resorts partnership.
- Carnival (CCL) reports third-quarter earnings Tuesday, a test for the whole cruise sector.
- Analysts expect Carnival’s adjusted earnings to fall to $1.35 a share from $1.43 a year ago.
Royal Caribbean (RCL) stock slipped a fraction to $242.43 on Monday, a day after closing up 1.6% at $242.70 on Friday. The move came as two major banks turned bullish on the cruise operator right before rival Carnival’s earnings report.
Royal Caribbean Cruises Ltd., RCL
Deutsche Bank and Bank of America each upgraded Royal Caribbean to Buy on Monday. Both cited the stock’s steep pullback since early August as a reason for the improved risk-to-reward setup.
Royal Caribbean stock has fallen 26% since August 5. It’s now down about 13% for the year and has slid below both its 50-day and 200-day moving averages.
Deutsche Bank kept its price target unchanged at $299. The firm said the recent decline gives investors a more attractive entry point than earlier in the year.
Bank of America analyst Andrew Didora moved his rating to Buy from Neutral and set a $330 price target. He called Royal Caribbean a “high quality business” in his note to clients.
What’s Driving the Optimism
Didora pointed to the company’s planned investment in Sandals Resorts as a growth driver. He estimated the deal could add $900 million in Ebitda by 2030.
“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 weighed in Monday. The firm reiterated its Buy rating and kept a $425 price target on the stock, the highest among the analysts mentioned here.
Tigress said the Sandals and Beaches Resorts partnership strengthens Royal Caribbean’s position in global vacation spending. It added that the pullback in the stock creates a long-term buying opportunity.
The firm noted RCL trades at a P/E ratio of 15.01 and currently looks undervalued against its fair value estimate. That’s based on InvestingPro’s analysis of the stock.
Tigress also said the Sandals deal adds premium resort earnings at 10 times Ebitda. It expects the tie-up to boost customer loyalty and lifetime guest spending over time.
Carnival Earnings Loom Over the Sector
Carnival (CCL) reports third-quarter results before the bell Tuesday. Wall Street expects adjusted earnings of $1.35 a share, down from $1.43 a year ago.
Revenue is forecast to grow 3% to $8.39 billion, according to FactSet. Carnival stock dipped 0.6% to $22.10 on Monday.
The cruise industry has faced a rough year. Higher fuel costs tied to the U.S. conflict with Iran, a hantavirus scare, and travelers staying closer to home have all weighed on results.
Fuel prices remain the biggest wildcard. Talks between the U.S. and Iran to end the conflict are still unresolved.
Other cruise stocks also moved lower Monday. Norwegian Cruise Line (NCLH) and Viking Holdings (VIK) each dropped around 1.5%.
Other analysts have also turned more positive on Royal Caribbean recently. JPMorgan raised its price target to $394 and kept an Overweight rating, citing a positive yield outlook.
Bernstein SocGen reiterated an Outperform rating with a $355 target. UBS kept its Buy rating and $367 target after Royal Caribbean’s joint venture partner, TUI Cruises, posted strong preliminary results.
TUI reported a 12% jump in capacity and a 2% rise in daily rates for the September quarter. Goldman Sachs also reiterated its Buy rating with a $360 price target on Royal Caribbean
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