Royal Caribbean Cruises Ltd. RCL is likely to benefit from digital initiatives, customized destination experiences as well as other ship upgrades. This along with increased focus on Healthy Sail Panel bodes well. In the past year, shares of the company have surged 157.6% compared with the industry’s 96.7% rally. However, increased cost of operations along with dismal 2021 bookings owing to the pandemic, raise concerns.
Let us discuss why investors should hold on to the stock for the time being.
Key Catalysts
Royal Caribbean continues to make use of digital tools for marketing, product development and to enhance 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 save time, introduction of superior Internet bandwidth and online check-in accompanied with radio-frequency identification technology are likely to continue increasing occupancy.
Moreover, the company introduced new technological capabilities under its Project Excalibur. The company rolled out a smartphone app to increase convenience and better serve guests. In fact, the app is so broadly deployed that more than 60% of Royal Caribbean’s current guests can avail it. In addition to industry-wide trends, there are several unique factors that are boosting the company’s numbers. Streaming WiFi and customized destination experiences as well as other ship upgrades, are also paying off.
The cruise industry has been driven to a standstill by the coronavirus-induced crisis. However, the ongoing pandemic compelled companies to forget rivalries and come together to counter the scenario. Case in point, Royal Caribbean Cruises and Norwegian Cruise have teamed up to develop safety standards. Former Utah governor Mike Leavitt and former U.S. Food and Drug Administration commissioner Scott Gottlieb are serving as co-chairs of a newly-formed group of experts called the “Healthy Sail Panel.” The company announced that its team along with healthy sale panel has worked to prepare a health protocol to resume operations. The panel has made 74 specific recommendations to help reduce any risks stemming from the coronavirus pandemic.
Meanwhile, Royal Caribbean has resumed operations in limited capacity and started receiving positive reviews by customers sailing with the company. The company initiated operations in Singapore, Germany and Canary Islands, Greece and the Middle East. Going forward, the company expects to re-start its global cruise operation in a phased manner with initial cruises having reduced guest occupancy, modified itineraries and enhanced health and safety protocols.
Concerns
The leisure industry is currently grappling with the coronavirus pandemic and Royal Caribbean isn’t immune to the trend. Travel warnings and cruise cancellations are taking a toll on the company. In fact, the outbreak compelled management to suspend 2021 guidance and cancel cruises. Notably, it suspended all voyages since mid-March. Due to the pandemic, bookings for 2021 have declined significantly.
Moreover, higher-than-anticipated load factors, timing and investment in revenue-generating activities are further adding to the company’s costs. Also, costs are likely to increase due the suspension of operations. The company anticipates cash burn in the range of $250-$290 million per month during a prolonged suspension of operations.
Zacks Rank & a Key Pick
Royal Caribbean — which shares space with Norwegian Cruise Line Holdings Ltd. NCLH and Carnival Corporation & plc CCL in the Zacks Leisure and Recreation Services industry — has a Zacks Rank #3 (Hold), at present.
A better-ranked stock in the same space is Camping World Holdings, Inc. CWH, which sports a Zacks Rank # 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Camping World Holdings has a three-five-year earnings per share growth rate of 34.7%.
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Carnival Corporation (CCL) : Free Stock Analysis Report
Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report
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