$RCL: Navigating a Positive Reversal Through Debt Repayment and Strong Consumer Demand

Stocks continued to rally this week, with the S&P 500 closing green in 13 of the last 15 sessions. The best-performing concepts are gene editing, hydrogen energy and cruise concept.

Considering the different perceptions of the stock, this time TigerPicks chose $Royal Caribbean Cruises(RCL)$ to have a fundamental highlight to help users understand it better.

Special commend: How to achieve an 8%* annualized yield on your Tiger Vault Fund?

$Royal Caribbean Cruises(RCL)$

Royal Caribbean Cruises' reversal is already here, thanks to the consistent debt repayment and moderating weighted average interest rates.

The robust consumer demand and pricing power are also reflected in its growing gross profit margins, elevated deposits, and raised FY2023 Net Yields/adj EPS guidance.

The RCL Investment Thesis Has Improved Drastically

For now, RCL has reported an exemplary double beat FQ3'23 earnings call, with revenues of $4.16B (+18.1% QoQ/+39.1% YoY) and adj EPS of $3.85 (+211.5% QoQ/+1380.7% YoY).

This is on top of the raised FY2023 adj EPS guidance to between $6.58 and $6.63, with the midpoint suggesting a YoY expansion of +188.06% from FY2022 levels of -$7.50, despite the headwinds from elevated fuel pricing, forex, and ongoing conflicts in Ukraine/ Israel.

If any, RCL's robust pricing power is notably observed in its expanding gross margins of 48.6% (+4.1 points QoQ/+12.8 YoY), well above the FY2019 levels of 45.6% (+1 points YoY).

Consumer demand remains strong as well, with deposits of $5.03B (-11.2% QoQ/+33.4% YoY) in the latest quarter, compared to FY2019 levels of $3.42B (+8.9% YoY).

RCL has also consistently deleveraged its balance sheet, with a moderating long-term debt of $17.6B in the latest quarter (-5.7% QoQ/-7.3% YoY), down by -16.1% from the peak levels of $20.98B, though still elevated compared to its FY2019 levels of $8.28B (inline YoY).

Most importantly, the management focuses on the reduction of variable rate debts to $4.59B (inline QoQ/-38.5% YoY), as a way to manage the headwinds from the elevated interest rate environment, with a consistently moderating FQ3'23 weighted average interest rate of 6.40% (-0.76 points QoQ/-0.79 YoY).

As a result, it is unsurprising that RCL's annualized interest rate expenses have steadily declined to $1.36B (-4.1% QoQ/-3.2% YoY), down from the peak levels of $1.72B, though still elevated compared to FY2019 levels of $408.51M (+22.4% YoY).

For now, the sustained deleveraging also meant that the cruise line's debt maturities of $3B through 2024 are somewhat manageable, based on the robust cash from operations of $3.36B YTD, with its profitability likely to accelerate based on the booking trends thus far.

These developments have suggested that RCL is in a much better shape than it was some quarters ago, with the robust booking trend and pricing power likely to accelerate its deleveraging and balance sheet improvement.

Combined with its expanding FQ3'23 Net Yields of +16.7% from FQ3'19 levels and FY2023 guidance of +13.15% from FY2019 levels, we believe that things are looking much brighter for the cruise liner, for so long that these trends are sustained over the next two years of uncertain macroeconomic outlook.

A note of warning here.

The Fed has guided a normalized economy only by 2026, with the restart of US federal student loan repayment from October 2023 likely to pose some headwinds to the consumer's discretionary spending.

For now, North America comprises 57.4% (-5.8 points QoQ/+0.3 YoY) of RCL's revenues by itinerary in the latest quarter, with it remaining to be seen if the cruise line may sustain the promising booking trends as the industry heads into the winter season.

On the one hand, the impact may not be as severe as expected, since most of its consumers come from a median household income of at least $125K, further aided by the robust labor market and wages. This results in excellent cruise booking levels and doubled pre-cruise purchases through 2024, despite the moderate growth in its capacity by 8%.

On the other hand, investors may want to temper their near-term expectations, especially since the stock is trading at a notable premium, with part of its upside potential already pulled forward.

So, Is RCL Stock A Buy, Sell, or Hold?

RCL Valuations

RCL Valuations

For now, RCL's FWD P/E valuation of 15.58x remains elevated compared to its 3Y pre-pandemic mean of 13.05x and the sector median of 14.57x, implying the stock's notably baked-in premium.

The Consensus Forward Estimates

The Consensus Forward Estimates

Tikr Terminal

Perhaps part of the optimism is attributed to the promising consensus forward estimates, with RCL expected to generate a robust bottom line CAGR of +26.1% between FY2023 and FY2025, compared to its pre-pandemic CAGR of +16.2%.

On the one hand, based on the management's FY2023 adj EPS guidance of $6.60 and the stock's normalized P/E valuation of 13.05x, the stock appears to be trading above its fair value of $86.13.

On the other hand, based on the consensus FY2025 adj EPS estimates of $10.49, there seems to be an excellent upside potential of +34% to our long-term price target of $136.89.

RCL 5Y Stock Price

RCL 5Y Stock Price

TradingView

For now, thanks to the excellent FQ3'23 results and raised FY2023 guidance, RCL has already rallied tremendously by +27.5% from its October 2023 bottom, with the stock likely to retest its resistance levels of $105s.

However, with the macroeconomic outlook still uncertain over the next two years, we are not so bullish as to project a potential breakout ahead, with the stock likely to trade sideways as it grows into its pulled-forward recovery.

We believe that patient and opportunistic investors may reap great rewards ahead, with the management likely to reinstate dividends when the company achieves its Trifecta Goals by the end of 2025: adj EBITDA per APCD of at least $100, adj EPS of at least $10, and ROIC of 13% or higher.

As a result of the potential dual-pronged returns through capital appreciation and dividend income, we are finally re-rating the RCL stock as a Buy.

Interested investors may want to wait for a moderate pullback before adding, preferably at its previous support levels of $90 for an improved margin of safety.

Stock Price Forecast:

Here are the target price forecasts for the next 12 months from analysts.

The 17 analysts offering 12-month price forecasts for Royal Caribbean Cruises Ltd have a median target of 120.00, with a high estimate of 140.00 and a low estimate of 79.20. The median estimate represents a +13.69% increase from the last price of 105.55.

Resource:

https://seekingalpha.com/article/4652598-royal-caribbean-cruises-q3-earnings-finally-buy-improved-upside-through-fy2025

What are your thoughts on $Royal Caribbean Cruises(RCL)$?

Or do you know other companies in the industry?

Please leave your comment below.

🎁Prizes

All Tigers who leave valid comments in the comments section will receive Tiger Coins.

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Report

Comment40

  • Top
  • Latest
  • icycrystal
    ·2023-11-20
    TOP
    thank you for sharing this stock $Royal Caribbean Cruises(RCL)$ based on chart, this stock is trending up (looks promising). however, the liabilities are not to my liking as it's quite high. the company is trying to  lower its debt though. perhaps I may just keep watch on this stock and monitor... [Thinking] [Thinking] [Thinking]
    Reply
    Report
    Fold Replies
  • koolgal
    ·2023-11-21
    TOP

    🌟🌟🌟$Royal Caribbean Cruises(RCL)$  has overtaken $Carnival(CCL)$  as the world's largest cruise line with market capitalisation of USD 27 billion.  It has 26 ships sailing globally under the brand of Royal Caribbean, Celebrity Cruises as well as Silverseas.

    Royal Caribbean also owns the largest ships in the world with Wonder of the Seas, the largest, capacity of 6988 passengers, 2300 crew members and 236,837 tonnage.

    I am bullish on Royal Caribbean as it has a wide moat in terms of capacity, loyal customers and exciting experiences for its passenger s from huge water slides, rock climbing, fabulous shows to keep its passengers engaged as well as a huge variety of restaurants too.

    With an increasing gross margin in its latest Q3 2023 of 48.6%, Royal Caribbean will be able to pay down its sizeable debts sooner than later.  I would like to set sail with Royal Caribbean as it sails through the troubled waters and reach safe harbour.

    @TigerPicks  @TigerStars  

    Reply
    Report
    Fold Replies
    • koolgalReplying tozuma
      Have a wonderful day 🍀🍀🍀
      2023-11-22
      Reply
      Report
    • koolgalReplying tozuma
      My pleasure 😍😍😍
      2023-11-22
      Reply
      Report
    • zuma
      thx
      2023-11-22
      Reply
      Report
    View more 6 comments
  • Aqa
    ·2023-11-20
    RCL has already rallied tremendously by +27.5% from its October 2023 bottom, with the stock likely to retest its resistance levels of $105s.
    Reply
    Report
  • icycrystal
    ·2023-11-20
    @LMSunshine @koolgal @Shyon @Aqa @DiAngel
    Tigers who leave valid comments in the comments section will receive Tiger Coins.
    Reply
    Report
    Fold Replies
    • koolgal
      Thanks for sharing 😍😍😍
      2023-11-21
      Reply
      Report
  • Universe宇宙
    ·2023-11-21
    @TigerGPT get from internet and tell me is more people going on cruise in 2023?
    Reply
    Report
    Fold Replies
    • TigerGPT

      According to the news articles I found, it seems that 2023 is expected to be a big year for the cruise industry, with an abundance of new ships and itineraries. Here are some highlights:

      The Points Guy mentions several exciting new cruise ships for 2023, including MSC World Europa, Explora 1, Vista, and Silver Nova. These ships are expected to bring new experiences and options for cruisers. Read more

        

      Travel + Leisure has selected 16 different types of cruises as the best ones to book in 2023. This indicates a wide range of options available for both new and frequent cruisers. Read more

        

      USA TODAY highlights some Black Friday cruise deals for 2023, offering discounts and credits on select sailings departing from January 2024. This suggests that cruise lines are actively promoting their offerings for the upcoming year. Read more

        

      Based on these articles, it appears that there is a positive outlook for the cruise industry in 2023, with new ships, attractive itineraries, and promotional deals. However, it's important to note that the actual number of people going on cruises in 2023 can be influenced by various factors such as travel restrictions, consumer preferences, and global events. It's always recommended to stay updated with the latest news and consult with travel experts for the most accurate and up-to-date information.

      Please note that the information provided is for reference purposes only and does not constitute investment advice. Investing in stocks involves risks, and it's important to conduct thorough research and consider your own financial situation before making any investment decisions.

      2023-11-21
      Reply
      Report
  • Universe宇宙
    ·2023-11-21
    @TigerGPT perform technical analysis on RCL
    Reply
    Report
    Fold Replies
    • TigerGPT

      Technical Analysis on Royal Caribbean Cruises (RCL)

      1. Business and Industry Overview:Royal Caribbean Cruises (RCL) is a leading global cruise company that operates a fleet of cruise ships under various brands. The company offers a wide range of cruise itineraries and onboard amenities to cater to different customer preferences. The cruise industry is expected to experience growth in the coming years, driven by increasing consumer demand for travel and leisure experiences. As the global economy recovers and travel restrictions ease, the cruise industry is poised to benefit from pent-up demand for vacations and exploration.

      2. Earnings Analysis:

      RCL reported strong earnings in the third quarter of 2023, with revenues of $4.16 billion, representing an 18.1% increase quarter-over-quarter and a 39.1% increase year-over-year.  

      The adjusted earnings per share (EPS) for the same period were $3.85, reflecting a significant increase of 211.5% quarter-over-quarter and 1380.7% year-over-year.  

      The company has also raised its FY2023 adjusted EPS guidance to a range of $6.58 to $6.63, indicating a year-over-year expansion of approximately 188.06% from FY2022.  

      3. Trend Analysis:

      The latest price of RCL is $105.81 (USD) as of November 21, 2023.  

      The support price on November 17, 2023, was $82.35 (USD), indicating a level where buying interest may emerge.  

      The resistance price on November 17, 2023, was $105.55 (USD), representing a level where selling pressure may increase.  

      The average cost on November 17, 2023, was $88.91 (USD), which can be considered as the average price at which investors have bought the stock.  

      The profiteer ratio on November 17, 2023, was 0.9997, suggesting a high probability of profit-taking at that time.  

      4. Valuation Analysis:

      Analysts have provided target price forecasts for RCL over the next 12 months. The median target price is $120.00 (USD), with a high estimate of $140.00 (USD) and a low estimate of $79.20 (USD). This represents a potential increase of 13.69% from the last price of $105.55 (USD).  

      Analyst recommendations for RCL include 5 "recommend," 11 "buy," and 4 "hold" ratings.  

      5. Capital Flow Analysis:

      Over the past five days, the capital flow data for RCL shows mixed inflows and outflows, indicating fluctuating investor sentiment.  

      On a daily basis, there have been both inflows and outflows of varying magnitudes, suggesting active trading activity.  

      Overall Assessment:Based on the positive earnings performance, improving investment thesis, and strong consumer demand, RCL appears to be in a favorable position. The target price forecasts from analysts indicate potential upside for the stock. However, it is important to note that stock prices are subject to market volatility and inherent risks. Investors should conduct their own research and consider their risk tolerance before making investment decisions.

      Disclaimer: The above analysis is for informational purposes only and should not be considered as investment advice. Investing in stocks involves risks, and the prices of stocks can fluctuate. It is important to do thorough research and consult with a financial advisor before making any investment decisions.

      Sources:

      Seeking Alpha: Royal Caribbean Cruises Q3 Earnings - Finally A Buy With Improved Upside Through FY2025  

      2023-11-21
      Reply
      Report
  • Universe宇宙
    ·2023-11-21
    @TigerGPT perform SWOT analysis on RCL
    Reply
    Report
    Fold Replies
    • TigerGPT

      SWOT Analysis of Royal Caribbean Cruises (RCL):

      Strengths:

      Debt Repayment: Royal Caribbean Cruises has been consistently repaying its debt, which has improved its financial position and reduced interest expenses.  

      Strong Consumer Demand: The company has experienced robust consumer demand, indicating a positive outlook for the cruise industry.  

      Pricing Power: Royal Caribbean Cruises has demonstrated pricing power, leading to growing gross profit margins.  

      Raised Guidance: The company has raised its FY2023 Net Yields and adjusted EPS guidance, indicating confidence in future performance.  

      Weaknesses:

      Industry Vulnerability: The cruise industry is susceptible to external factors such as economic downturns, geopolitical events, and health crises, which can impact demand and profitability.  

      Debt Levels: Although Royal Caribbean Cruises has been actively repaying its debt, it still carries a significant debt burden, which can limit financial flexibility.  

      Opportunities:

      Dividend Reinstatement: The company aims to reinstate dividends once it achieves its Trifecta Goals by the end of 2025, which can attract income-focused investors.  

      Capital Appreciation: There is potential for capital appreciation in the stock due to improving financials and positive industry outlook.  

      Threats:

      Economic Uncertainty: Economic downturns or recessions can negatively impact consumer discretionary spending, including travel and leisure activities.  

      Geopolitical Risks: Political instability, trade disputes, or other geopolitical events can disrupt the cruise industry's operations and affect profitability.  

      Overall, Royal Caribbean Cruises (RCL) has shown positive signs of recovery and improvement. The company's strong consumer demand, debt repayment efforts, and raised guidance indicate a positive investment thesis. However, it is important to consider the inherent risks associated with the cruise industry, such as economic uncertainty and geopolitical risks.

      Other companies in the cruise industry include Carnival Corporation (CCL) and Norwegian Cruise Line Holdings Ltd. (NCLH). These companies operate in a similar market and may be worth considering for comparative analysis.

      Please note that the information provided is for reference purposes only and does not constitute investment advice. It is essential to conduct thorough research and analysis before making any investment decisions.

      Source: Seeking Alpha

      Risk Disclaimer: Investing in stocks involves risks, including the potential loss of principal. The information provided is for informational purposes only and should not be relied upon as the sole basis for making investment decisions. Users should consult with their own financial advisors before making any investment decisions.

      2023-11-21
      Reply
      Report
  • Joelelel
    ·2023-11-22

    Great ariticle, would you like to share it?

    Reply
    Report
  • Sonsonkok
    ·2023-11-22

    Great ariticle, would you like to share it?

    Reply
    Report
  • Kiki24
    ·2023-11-22
    Great ariticle, would you like to share it?
    Reply
    Report
  • puja oktasia
    ·2023-11-22
    Great ariticle, would you like to share it?
    Reply
    Report
  • puja oktasia
    ·2023-11-22
    Great ariticle, would you like to share it?
    Reply
    Report
  • winterflower
    ·2023-11-21

    Great ariticle, would you like to share it?

    Reply
    Report
  • Sonsonkok
    ·2023-11-21

    Great ariticle, would you like to share it?

    Reply
    Report
  • youthfrost
    ·2023-11-21
    Great ariticle, would you like to share it?
    Reply
    Report
  • MasterStonker
    ·2023-11-20
    I still want to ride $Royal Caribbean Cruises(RCL)$ lol
    Reply
    Report
  • Xian789
    ·2023-11-20
    price almost ATH
    Reply
    Report
  • CherryPang
    ·2023-11-22

    Ok thanks 👍

    Reply
    Report
  • CherryPang
    ·2023-11-22

    Good 👍 buy 😁

    Reply
    Report
  • deiisndh
    ·2023-11-22
    niceee
    Reply
    Report