Analyst Note| Jaime M. Katz, CFA |
No-moat Royal Caribbean wrapped up its final quarter of a difficult 2020, posting just $26 million in net revenue, down from $2 billion in the year-ago period, and an adjusted EPS loss of $5.02. As Royal’s ships largely remain off the seas (except for TUI and Quantum in Singapore), the prognosis for 2021 is opaque, but full-year losses are likely to persist, given the uncertainty about the start-sail date (currently May 1). As such, we look beyond the pandemic to assess what normalized EPS power for Royal might be. Commentary that second-half 2021 pricing is higher than 2019 indicates that demand still exists for the cruise product and that scarce supply in the near term supports higher pricing. Additionally, early first-half 2022 bookings also indicate improving yields. As a result of a healthy consumer travel appetite after the pandemic, we could lift our $53 fair value estimate by a single-digit percentage, but view shares as rich.