Why Royal Caribbean Stock Is Down By 5% Today

Royal Caribbean Stock Drops Amid Virus Fears

Shares of Royal Caribbean are under strong pressure today amid fears about the spread of the Delta variant of coronavirus.

Other cruise line stocks like Carnival and Norwegian Cruise Line Holdings are under significant pressure as well. American Airlines, Delta Airlines, United Airlines are also falling, highlighting the broad fear about the near-term future of the travel industry.

It should be noted that recent data suggested that domestic demand for travelling was very strong, but the market fears that a potential surge of new cases caused by the Delta variant of coronavirus may lead to new restrictions or scare potential travellers.

What’s Next For Royal Caribbean Stock?

Royal Caribbean shares have already dropped by more than 30% from highs that were reached back in February. However, it remains to be seen whether traders will rush to buy the stock after the recent correction.

Analysts expect that Royal Caribbean will report a loss of $13.61 per share in 2021 which will be followed by a profit of $2.07 per share in 2022. At current price levels, the stock is trading at about 33 forward P/E which is not cheap.

It should be noted that Royal Caribbean has significantly increased its long-term debt during the pandemic which makes the stock more sensitive to bad news.

I’d also note that many traders have probably waited for any significant pullback in the market, and we’ll probably see an attempt to rebound in the upcoming trading sessions as those traders establish new positions.

Cruise line stocks have lost a lot of ground in recent weeks so they may attract speculative traders who want to bet on a broad market rebound. The main risk for Royal Caribbean is the potential deterioration of the situation with coronavirus, but traders should keep in mind that there is no evidence that demand for travelling is declining at this point.

For a look at all of today’s economic events, check out our economic calendar.

Royal Caribbean Cancels New Cruise Line from Israel Over Unrest

The sailings out of Haifa port would have been the first for Royal Caribbean‘s new ship “Odyssey of the Seas” and were intended to exploit a travel corridor being set up among the three countries for travellers vaccinated against COVID-19.

“Due to the unrest in Israel and region, Odyssey has not been able to complete the preparations required,” the company said late on Saturday in what appeared to be a reference to fighting over Gaza and tensions on Israel’s border with Lebanon.

The ship will spend its inaugural season in Florida, the statement said, adding that it “remains hopeful to return to this popular destination (Israel) with its ships in the future”.

(Writing by Dan Williams; Editing by David Goodman)

Royal Caribbean’s Q1 Earnings to Look Similar to Q4, Says Morgan Stanley

The Miami-based global cruise vacation company Royal Caribbean’s first-quarter earnings is expected to look similar to the previous quarter given it was another quarter of close to zero sailings, but remain upbeat on booking trends and sailing resumption, according to analysts at Morgan Stanley.

Royal Caribbean is set to report its first-quarter earnings in late April.

“We estimate EBITDA of $(475)m, a monthly opex burn of ~$160m, in-line with guidance of $150-170m, and the same as the Q4 rate of $162m. This gives adjusted net income of $(1.1)bn and EPS of $(3.93). Consensus is EBITDA of $(502)m and net income of $(1.1)bn. We are not modelling additional impairments or other exceptionals in Q1, which amounted to $(1.6)bn in 2020,” noted Jamie Rollo, equity analyst at Morgan Stanley.

“We are cautious on the cruise lines as we think a return to normal will take longer than expected, leverage is high (9x/7x/5x 2022-24e), and valuations look rich (17x pre-COVID-2019 P/E). We model a phased resumption and estimate EBITDA of $(747)m in 2021 (consensus $(977)m), and see a downside to this, and a return to 2019 levels by 2023.”

Royal Caribbean’s shares, which slumped 44% in 2020, rose over 20% so far this year.

Eight analysts who offered stock ratings for Royal Caribbean in the last three months forecast the average price in 12 months at $92.14 with a high forecast of $117.00 and a low forecast of $55.00.

The average price target represents a 2.57% increase from the last price of $89.83. Of those eight equity analysts, four rated “Buy”, two rated “Hold” and two rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $50 with a high of $134 under a bull scenario and $20 under the worst-case scenario. The firm gave an “Underweight” rating on the cruise company’s stock.

Other equity analysts also recently updated their stock outlook. Deutsche Bank raised their price objective to $79 from $62 and gave the stock a “hold” rating. Berenberg Bank lowered to a “sell” rating from a “hold” and set a $55 price target. JPMorgan increased their target price to $110 from $100 and gave the stock an “overweight” rating. Credit Suisse Group boosted their price target to $117 from $76 and gave the company an “outperform” rating.

“We think the cruise industry will be one of the slowest sub-sectors to recover from COVID-19. Cruising needs not just international travel to return, but ports to reopen, authorities to permit cruising, and the return of customer confidence,” Morgan Stanley’s Rollo added.

“We expect cruising to resume in Q2 2021 and expect FY19 EBITDA to return in FY23 given FY22 will be the first normal year, and pricing will likely come under pressure. FY19 EBITDA implies EPS 50% lower given share issue dilution and higher interest expense. We see debt doubling in FY21 vs FY19 due to operating losses and high capex commitments, and leverage looks high at 6x even in FY23e, so we see risk more equity might need to be raised.”

Check out FX Empire’s earnings calendar

Royal Caribbean Sails Toward 12-Month High as Earnings Top Forecasts

Royal Caribbean Group (RCL) rose to a near one-year high Monday, gaining 9.33% after the cruise line operator beat Wall Street’s bottom-line expectations.

The Miami-based leisure company reported a large fourth quarter (Q4) loss of $1.1 billion, or $5.02 per share, while analysts had anticipated a loss of $5.04 a share. However, the figure plunged from the $1.42 earnings per share (EPS) profit reported in the year-ago quarter amid ongoing cruise cancellations. Meanwhile, revenues for the period sank to $34.1 million, down from $2.5 billion in the December 2019 quarter.

Management reiterated during the earnings call that it expects the company’s monthly cash burn to remain in the $250- to $290 million range during the suspension of operations. In its latest update on Feb. 18, the company said via its website that it had extended the suspension of its global fleet through April 30, 2021, except for select voyages departing from Singapore and China.

CEO Richard Fain provided a glimmer of hope, telling CNBC’s Seema Mody that early bookings data for the current quarter – particularly for older customers – indicates a surprisingly positive post-Covid recovery. “Some of the things we thought were going to happen aren’t happening. They’re better than we thought,” he said.

Through Monday’s close, Royal Caribbean stock has a market capitalization of $20.47 billion and trades 15.45% higher since the start of the year. Over the past 12 months, the shares trade underwater by around 19%.

Wall Street View

Last month, Deutsche Bank analyst Chris Woronka bumped the investment firm’s price target on the stock to $62 from $46 while maintaining his ‘Hold’ rating. Woronka sees uncertainty remaining for the first half of 2021, with more sailings resuming in the second half of the year.

Elsewhere, most other broker coverage recommends sitting on the sidelines for now. The stock receives 7 ‘Hold’ ratings, 3 ‘Buy’ ratings, 2 ‘Underweight’ ratings, and 1 ‘Sell’ rating. Price targets range from a Street-high $100 to $48 low, with the median target pegged at $61. Look for re-ratings in the coming weeks as analysts get a better understanding of the cruise operator’s short- to mid-term outlook.

Technical Outlook and Trading Tactics

Royal Caribbean’s better-than-expected earnings helped its share price break above a multi-month horizontal trendline to reach its highest level in almost a year. The move occurred on above-average volume, increasing the probability of follow-through buying in subsequent trading sessions.

Those who buy the breakout should set a take-profit order at the pre-pandemic double top around $135, where the price may encounter overhead resistance. Protected against a reversal with a stop placed somewhere below the 50-day simple moving average (SMA).

For a look at today’s earnings schedule, check out our earnings calendar.

US Stock Market Daily Recap: The Yield Harbinger for Stocks

That correction I’ve been calling for weeks could have potentially started.

While I don’t foresee a crash like we saw last March and feel that the wheels are in motion for a healthy 2021, I still maintain that some correction before the end of Q1 could happen.

Bank of America also echoed this statement and said last week that “We expect a buyable 5-10% Q1 correction as the big ‘unknowns’ coincide with exuberant positioning, record equity supply, and as good as it gets’ earnings revisions.”

But rather than looking at the past, let’s take a look at what’s on tap this week to get you ready for what could potentially be a volatile week ahead.

This coming week, be on the lookout for the January leading indicator index, durable goods orders, and personal income and spending.

On Tuesday, we will also receive the February Consumer Confidence Index; on Wednesday, the Census Bureau will release upcoming home sales. On Friday, the University of Michigan will release its Consumer Sentiment Index.

Of course, as we’ve seen in weeks past, jobless claims from the previous week will be announced on Thursday too. After outperforming the last few weeks, the jobless claims announced last Thursday (Feb. 18) grossly underperformed and reached their worst levels in nearly a month.

Earnings season has been outstanding but is winding down now. Be on the lookout this week for earnings from Royal Caribbean (RCL) on Monday (Feb. 22), Square (SQ) on Tuesday (Feb. 23), Nvidia (NVDA) on Wednesday (Feb. 24), and Virgin Galactic (SPCE) and Moderna (MRNA) on Thursday (Feb. 25).

We have the makings of a volatile week, and as I mentioned before, a possible correction.

Look. Don’t panic. We have a very market-friendly monetary policy, and corrections are more common than most realize. Corrections are also healthy and normal market behavior, and we are long overdue for one. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017), and we haven’t seen one in a year.

While it won’t happen for sure, I feel like it’s inevitable because of how much we have surged over the last few months.

A correction could also be an excellent buying opportunity for what could be a great second half of the year.

My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one to help people who needed help instead of the ultra-high net worth.

With that said, to sum it up:

While there is long-term optimism, there are short-term concerns. A short-term correction between now and the end of Q1 2021 is possible. I don’t think that a decline above ~20%, leading to a bear market, will happen.

Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck.

Will the Russell 2000 Overheat Again?

Figure 1- iShares Russell 2000 ETF (IWM)

The Russell 2000 popped on Friday (Feb. 19) after seeing a bit of a pullback since February 9. Between February 9 and the close on February 18, the Russell 2000 lagged behind the other indices after significantly overheating. I switched my call to a SELL then on the 9th, and it promptly declined by 3.40% before Friday’s session.

I foresaw the pullback but cautiously saw a rally and switched to a HOLD call before it popped over 2% on Friday (Feb. 19).

I do love small-caps for 2021, and I liked the decline before Friday. However, I feel like the index needs a minimum decline of 5% from its highs before switching it to a BUY.

As tracked by the iShares Russell 2000 ETF (IWM) , small-cap stocks have been on a rampage since November.

Since the market’s close on October 30, the IWM has gained nearly 47.56% and more than doubled ETFs’ returns tracking the larger indices. If you thought that the Nasdaq was red hot and frothy, you have no idea about the Russell 2000.

Not to mention, year-to-date, it’s already up a staggering 16.38%.

It pains me not to recommend you to BUY the Russell just yet. I love this index’s outlook for 2021. Aggressive stimulus, friendly policies, and a reopening world could bode well for small-caps. Consumer spending, especially for small-caps, could be very pent-up as well.

But we just need to hold on and wait for it to cool down just a little bit more for a better entry point.

HOLD. If and when there is a deeper pullback, BUY for the long-term recovery.

For more of my thoughts on the market, such as the streaky S&P, inflation, and emerging market opportunities, sign up for my premium analysis today.

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For a look at all of today’s economic events, check out our economic calendar.

Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care

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All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits’ employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.


Three Top Earnings Plays This Week

Major indices sold off this week one year ago when a Kirkland, Washington nursing home reported the first non-travel related COVID cases in the United States. The rest is history, with major benchmarks crashing to multiyear lows, ahead of a relentless recovery underpinned by massive government stimulus programs. Those greenbacks continue to guide price action in 2021, with banks and recovery plays outperforming while pandemic beneficiaries falter.

The next act of this real-life soap opera comes in Monday’s pre-market, when Royal Caribbean Group (RCL) is likely to report another quarter of staggering losses.   Dow component Home Depot Inc. (HD) heads the week’s blue chip earnings schedule on Tuesday while rival Lowe’s Cos. Inc. (LOW) follows on Wednesday. Hot rocket NVIDIA Inc. (NVDA) also reports mid-week, with investors confident the stock will trade above 1,000 in coming years.

Royal Caribbean

Royal Caribbean is expected to report a Q4 2020 loss of $4.99 per-share after posting a $1.42 profit in the same quarter last year. That was also the last quarter the cruise operator made money or had a full fleet sailing around the world. RCL has gone to the capital markets several times since then, attempt to stay afloat, which takes on special meaning in this case. As with other battered leisure segments, the company is counting on vaccines to get them back in business.

Home Depot

Wall Street analysts are looking for Home Depot to earn $2.37 per share on $27.1 billion in Q4 2020 revenue. The stock cleared February 2020 resistance in May and posted an all-time high at 292.95 in August. It failed an October breakout attempt and has traded in a narrow range since that time, working off 2020’s outsized share gains. With the pandemic receding, the retailer could trade higher on a booming housing market and the strengthening U.S. economic outlook.


NVIDIA is expected to report another strong quarter on Wednesday, with analysts predicting a Q4 2020 profit of $1.98 per-share on $4.82 billion in revenue. The stock just nosed above the September peak at 589.07 but a breakout will require a buy-the-news reaction after the report. That isn’t a sure thing after Advanced Micro Devices Inc. (AMD), the other beneficiary of Intel Corp. (INTC) missteps, sold off in January despite beating top and bottom line estimates.

For a look at all of this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.