Royal Caribbean's Undervalued Potential: Why Strong Bookings And Operational Expertise Make It A Buy

Stifel analyst Steven M. Wieczynski reiterated a Buy rating on Royal Caribbean Cruises Ltd. RCL, lowering the price target to $130 from $135.

The analyst cautions about higher fuel headwinds, which are estimated to be ~$6 million-$8 million in 3Q23 and ~$25 million-$30 million in 4Q23.

Based on recent negative FX moves, Wieczynski estimates that the current FX headwind should be ~$10 million-$12 million in 3Q23 and ~$15 million-$20 million in 4Q23. 

As a result, the analyst lowered the FY24 EPS estimate to $7.94 from $8.43. FY24 revenue estimate is lowered to $12.30 billion from $12.37 billion.

For FY25, the analyst lowered EPS estimate to $9.82 from $10.35. Revenue estimate is lowered to $13.32 billion from $13.39 billion.

On the positive side, Wieczynski senses bookings/ demand have remained incredibly strong for the remainder of 2023 and 2024.

The analyst continues to believe RCL's current share price reflects considerable under-appreciation of - the company’s ample liquidity runway, superior operational expertise and asset quality, and the resiliency of the core cruise customer. 

In fact, the analyst believes there is at least a two-to-three-year pent-up backlog in demand. 

This means cruise demand/bookings should remain healthy even if the consumer somewhat weakens.

With RCL’s Trifecta goals looking more realistic/conservative, the analyst believes shares should eventually end up well in triple-digit territory.

The analyst is eyeing onboard trends after seeing upbeat performances from North American and European customers.

Accordingly, Wieczynski is encouraging investors to accumulate shares at current levels ahead of a normalized operating environment for RCL and the cruise industry at large.

Price Action: RCL shares are trading lower by 2.11% to $97.66 on Friday.