Royal Caribbean’s Q1 Earnings to Look Similar to Q4, Says Morgan Stanley

The Miami-based global cruise vacation company Royal Caribbean’s first-quarter earnings is expected to look similar to the previous quarter given it was another quarter of close to zero sailings, but remain upbeat on booking trends and sailing resumption, according to analysts at Morgan Stanley.

Royal Caribbean is set to report its first-quarter earnings in late April.

“We estimate EBITDA of $(475)m, a monthly opex burn of ~$160m, in-line with guidance of $150-170m, and the same as the Q4 rate of $162m. This gives adjusted net income of $(1.1)bn and EPS of $(3.93). Consensus is EBITDA of $(502)m and net income of $(1.1)bn. We are not modelling additional impairments or other exceptionals in Q1, which amounted to $(1.6)bn in 2020,” noted Jamie Rollo, equity analyst at Morgan Stanley.

“We are cautious on the cruise lines as we think a return to normal will take longer than expected, leverage is high (9x/7x/5x 2022-24e), and valuations look rich (17x pre-COVID-2019 P/E). We model a phased resumption and estimate EBITDA of $(747)m in 2021 (consensus $(977)m), and see a downside to this, and a return to 2019 levels by 2023.”

Royal Caribbean’s shares, which slumped 44% in 2020, rose over 20% so far this year.

Eight analysts who offered stock ratings for Royal Caribbean in the last three months forecast the average price in 12 months at $92.14 with a high forecast of $117.00 and a low forecast of $55.00.

The average price target represents a 2.57% increase from the last price of $89.83. Of those eight equity analysts, four rated “Buy”, two rated “Hold” and two rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $50 with a high of $134 under a bull scenario and $20 under the worst-case scenario. The firm gave an “Underweight” rating on the cruise company’s stock.

Other equity analysts also recently updated their stock outlook. Deutsche Bank raised their price objective to $79 from $62 and gave the stock a “hold” rating. Berenberg Bank lowered to a “sell” rating from a “hold” and set a $55 price target. JPMorgan increased their target price to $110 from $100 and gave the stock an “overweight” rating. Credit Suisse Group boosted their price target to $117 from $76 and gave the company an “outperform” rating.

“We think the cruise industry will be one of the slowest sub-sectors to recover from COVID-19. Cruising needs not just international travel to return, but ports to reopen, authorities to permit cruising, and the return of customer confidence,” Morgan Stanley’s Rollo added.

“We expect cruising to resume in Q2 2021 and expect FY19 EBITDA to return in FY23 given FY22 will be the first normal year, and pricing will likely come under pressure. FY19 EBITDA implies EPS 50% lower given share issue dilution and higher interest expense. We see debt doubling in FY21 vs FY19 due to operating losses and high capex commitments, and leverage looks high at 6x even in FY23e, so we see risk more equity might need to be raised.”

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