The promise of an end to the coronavirus era has resulted in renewed optimism around cruise stocks. There was an industry wide uptick following the release of Royal Caribbean’s (RCL) latest quarterly statement. RCL shares climbed by 9% in the subsequent session. Year-to-date, the stock is up by 21%, and currently at its highest point in almost a year.
Of course, none of the gains are based on the quarter’s performance.
Due to coronavirus-related sailing constraints, most of the company’s ships remain at port. In the quarter, Royal Caribbean delivered a net loss of $1.4 billion, equating to a loss of $6.09 per share. For the whole of 2020, the cruise operator’s losses came in at $5.8 billion, representing a loss of $27.05 per share.
What really seemed to boost investors’ confidence were the reassuring noises the company made on the latest booking trends.
Compared to November/December, since the start of the year, management has said there has been a 30% increase in new bookings, with a bigger mix of guests over 65 years old. Additionally, three quarter of bookings are for new reservations with re-bookings making up the rest.
But is the widespread exuberance merited?
While Deutsche Bank analyst Chris Woronka says it is easy to understand the reasons for optimism, the analyst argues sentiment might be turning too positive, too soon. That said, the analyst is wary of going against the prevailing trend.
“Historically it has proven unwise to fight a ‘thesis trade,’” the analyst said. “And it’s not exactly a secret that sentiment is prone to overshooting on both the bullish and bearish sides during times of significant change. All of which is to say, we would not be surprised in the least to see momentum in RCL continue in the near term. In fact, and perhaps ironically, the largest potential impediment we see on the horizon is the likelihood that sell side forecasts begin to catch up with, or even exceed, buy side models in the out years.”
Accordingly, to reflect the “current market conditions and sentiment,” Woronka raised his RCL price target from $62 to $79. However, the revised target still suggests downside of 12% from current levels. (To watch Woronka’s track record, click here)
The majority of Street analysts remain skeptical. Based on 4 Holds, and 2 Buys and Sells, each, the stock has a Hold consensus rating. The average price target, at $67.75, suggests shares will decline by ~25% over the coming months. (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.