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Royal Caribbean Group RCL

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Morningstar’s Analysis

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Higher Cash Burn Over Near Term Offset by Robust Consumer Sentiment for 2022 at Royal Caribbean

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

No-moat Royal Caribbean printed a second-quarter adjusted EPS loss of $5.06, which was wider than the $4.14 loss we had modeled, as the firm was facing larger return to cruise costs than originally anticipated, burning $330 million per month (versus the $250 million-$290 million per month the firm previously guided to). Our thesis anticipated a lumpy expense trajectory as the redeployment of the fleet ensued, which appears to be occurring faster than we initially anticipated. Royal already has 29 ships on the seas (42% of its capacity), but expects 60% of the fleet to be operating by the end of August, with 80% up and running by year end—we thought just over half the fleet would be carrying passengers by December 31, 2021.  Faster deployment, along with apparently robust demand for the cruise product, should allow us to maintain our $68 fair value estimate, rendering shares fairly valued.

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Company Profile

Business Description

Royal Caribbean is the world's second- largest cruise company, operating 60 ships across five global and partner brands in the cruise vacation industry. Brands the company operates include Royal Caribbean International, Celebrity Cruises, and Silversea. The company also has a 50% investment in a joint venture that operates TUI Cruises and Hapag-Lloyd Cruises, allowing it to compete on the basis of innovation, quality of ships and service, variety of itineraries, choice of destinations, and price. The company is completed the divestiture of its Azamara brand in the first quarter of 2021.

1050 Caribbean Way
Miami, FL, 33132
T +1 305 539-6000
Sector Consumer Cyclical
Industry Travel Services
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type
Employees 85,000