Royal Caribbean Cruises Ltd RCL shares have enjoyed a strong run, benefiting from strong fundamentals, a supportive macroeconomic environment and low fuel prices. The good times may not last forever, according to one Berenberg analyst.
The Analyst
Berenberg analyst Stuart Gordon downgraded Royal Caribbean from Buy to Hold and maintained a $135 price target.
Berenberg also removed the company from its Alpha list.
The Thesis
The earlier optimism on Royal Caribbean was premised on above-consensus expectations, below-the-line earnings that were being ignored, supportive consumer confidence and low fuel prices, Gordon said in a note.
Despite a generally optimistic outlook for the industry, Gordon said he is now below-consensus for both 2018 and 2019. That said, momentum will continue, as consumer confidence, the key driver of yield growth, remains robust in the company's key markets, Gordon the analyst said.
See also: Argus Embarks On Norwegian Cruise Lines With A Buy
Berenberg expects fuel prices to act as a headwind, with the consensus estimates not factoring in the impact of higher energy costs. The research firm also projects a reduction in stock buyback and an increase in depreciation, as the company plans to invest in its Celebrity and RCL brands, bumping up capex by $1.4 billion.
The tax being contemplated for cruise companies while sailing within the U.S. will not have material impact on the company's earnings, Gordon said.
The Price Action
Royal Caribbean shares have gained roughly 49 percent year-to-date.
At the time of writing, the stock was seen retreating 1.64 percent to $122.44.
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