Royal Caribbean: Weathering the Storm

05/27/2020 5:00 am EST

Focus: TRANSPORTATION

Jason Clark

Contributing Editor, The Prudent Speculator

Cruise operator Royal Caribbean (RCL) reported a loss of $1.48 per share Q1; the loss was assuredly expected by the Street, given the predominate focus on survival in recent months, observes Jason Clark, value investing specialist and contributing editor to The Prudent Speculator.

Though the stock is off more than 67% year to date, shares are up almost 100% from the March lows, as RCL has reduced or deferred its capital spending for all of 2020 by over 65% (down to approximately $1.7 billion), with only $500 million to be spent in the remaining months.

It also has been able to push payments for debt borrowings against its vessels by 12-months, bringing debt maturities for the rest of 2020 down to $400 million, and the company added almost $4 billion of additional liquidity in the most recent quarter.

Management estimates cash burn to be in the range of $250 million to $275 million per month throughout the suspension of operations.

Looking ahead, bookings for the remainder of 2020 not surprisingly are well-behind this point last year, but it is very encouraging that though 2021 load factors are below the same time last year, they are still within historical ranges with prices for those cruises up around mid-single digits.

It appears from our vantage point that RCL will likely make it to the other side of the current storm and given current bookings for 2021, a case can be made that long-term cruising demand remains very strong.

That said, debt issuance and payment deferrals into the future will eventually come to roost, and efforts to make cruising safer will come at a cost, which will weigh on results even once sailings are reinstated. Our price target for RCL now stands at $62.

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