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Stocks  | April 24, 2020

Royal Caribbean Cruises is in the best position among its peers to “navigate through this unprecedented operating environment,” concludes a Stifel research note.

The coronavirus pandemic has hit the cruise operators as hard, if not harder, than just about any industry save for hotels, restaurants, and airlines.

The Centers for Disease Control and Prevention earlier this month extended its No Sail Order , possibly into mid-July.

Meanwhile, Royal Caribbean (ticker: RCL) and the other two large publicly traded U.S. cruise companies— Carnival (CCL) and Norwegian Cruise Line Holdings (NCLH)—are burning through millions of dollars of cash as their ships sit idle.

The stocks of all three companies have plunged by at least 70% year to date, compared with 13% decline for the S&P 500.

Royal Caribbean is the second-largest cruise company behind Carnival.

The Stifel analysts rate Royal Caribbean stock at Buy and raised the price target to $48 from $40. They maintain that the company is in the best shape in terms of liquidity, with the ability to keep things going for about 10 months. However, liquidity estimates do vary among analysts, and there has been a lot of behind-the-scenes work to take steps to reduce cash burn—including slashing come capital expenditures and operating costs and pushing out some debt payments.

Meanwhile, Bloomberg reported that Royal Caribbean is looking to raise more capital.

A Wells Fargo research report Thursday notes that any additional capital raise would likely be limited secured bonds or convertible bonds—“all potentially supplemented by a private-equity placement.” Wells Fargo rates Royal Caribbean stock at Overweight.

“We continue to view RCL as best in class and needing the least amount of capital, within an industry that admittedly will likely see an elongated recovery to pre-Covid-19 levels,” according to Timothy Conder of Wells Fargo.

Meanwhile, the Stifel analysts maintain that Royal Caribbean is also best positioned when cruising does resume, partly owing to its “brand quality.”

The company’s Silversea brand, which caters to ultraluxury customers who tend to skew older, may have a challenging time initially, they observe. But that brand accounts for less than 2% of Royal Caribbean’s capacity, they note.

Royal Caribbean’s stock was at around $35 and change Thursday morning, up more than 2% in early trading.


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