Vladimir Zernov
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Royal Caribbean Video 15.02.21.

Traders Will Focus On The Company’s Cash Burn

While S&P 500 continues to move higher on stimulus hopes and vaccine optimism, cruise line stocks are struggling to gain momentum despite the recent improvements on the virus front.

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Royal Caribbean is set to provide its earnings report tomorrow and is projected to report a loss of $5.20 per share. Most likely, the market will not focus on the company’s loss but will pay close attention to management’s comments about the industry’s future in the near term.

Traders will also pay special attention to the company’s cash burn which is inevitable in current conditions. While Royal Caribbean does not have short-term liquidity problems, excessive cash burn may put material pressure on the stock which is trading well above the lows that were reached in March 2020.


What’s Next For Royal Caribbean?

This year, Royal Caribbean lost about 10% of market capitalization as hopes for a rebound of the cruise line industry were crushed by a wave of new virus containment measures in Europe. The emergence of new, more infectious strains of coronavirus put additional pressure on cruise line stocks.

Cruise lines are very dependent on infrastructure so the world must get very close to normal in order for cruise line companies to get back to business as usual.

The bullish thesis implies that there is huge pent up demand for cruising which will translate into great sales for the next few years once the industry is fully reopened.

Meanwhile, the main near-term risk is that cash burn gets too big and Royal Caribbean will have to raise equity which will be negative for the price of its stock.

At this point, there are more questions than answers, so Royal Caribbean shares will likely be very volatile after the release of the earnings report. If the company’s cash burn does not look too dangerous, the stock should have a decent chance to gain upside momentum.

For a look at all of today’s economic events, check out our economic calendar.

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