Carnival Cruise (NYSE: CCL) and Royal Caribbean (NYSE:RCL) have rebounded strongly over the past 12 months, gaining 55% and 65% respectively. The lasting impact of COVID-19 on the cruise line industry has been significant with both companies halting operations in mid march last year. Since then, both companies have focused on minimal cash burn while the United States gets vaccinated. Carnival Cruise expects to run at 50% capacity with 42 ships by November 2021. Royal Caribbean have announced new itineraries for this summer for eleven additional ships from the Caribbean and Europe in addition to the four ships already sailing. This article will breakdown everything investors need to know about CCL and RCL stock forecasts.
JP Morgan Analysts are bullish on CCL and RCL stock
Analyst Brandt Montour and Joseph Greff from banking giant JP Morgan have noted a bullish outlook for both cruise line companies over the next 12 months. Last week Analyst Joseph Greff boosted CCL’s 12 month price target to $36 a share with a neutral rating on the stock. The target represents an upside of 38% from the current trading price.
However, JP Morgan has noted out of the US listed cruise line trio (RCL, NCHL & CCL) that Royal Caribbean is currently their preference. Analyst Brandt Montour boosted Royal Caribbean’s 12 month price target to $123 a share. The target represents a 53% upside and remains the street high target amongst analysts.
“Of the three, we continue to prefer RCL, based on comparatively impressive restart momentum, recent share underperformance, and longer term operational/pricing momentum that we expect to continue post-COVID-19,” noted JP Morgan in a statement.
Revenue outlook for CCL and RCL stock
Over the past 15 months, the cruise line industry has remained a volatile and uncertain prospect due to COVID-19. With cruise lines now eyeing off a full capacity launch by next spring, analysts have now updated their revenue outlook. The average revenue forecast for CCL in 2021 estimates the company to generate US$3.64 Billion. The forecast represents a YOY revenue decline of 35%. By 2022, revenue is expected to climb to $18.4 Billion which represents a YOY increase of 400% based on the 2021 forecast.
For Royal Caribbean (RCL), analysts expect the company to generate $2.2 Billion in 2021. In addition, analysts expect upwards of $10 Billion in revenue by 2022 (YOY increase of 350% based on 2021 forecasts). Based on the above consensus, RCL and CCL are expected to both bounce back strongly in the fiscal year of 2022. However, based upon the current uncertainty surrounding the new delta COVID strain these forecasts may vary significantly over the next 6-12 months. In saying this, with US leading in COVID-19 vaccination the threat of COVID-19 is significantly less compared to 12 months prior.
Financial strength of CCL and RCL
The cruise line industry has been at bay over the past 15 months. Therefore, it is important to understand the current cash positions of each business. Firstly, Royal Carribean noted in their Q1 earnings release that the cash burn rate for the quarter was $300 Million. The company noted the more than expected cash burn rate was due to “fleetwide restart expenses and timing.” In addition, the company noted they currently have $5.1 billion in cash and cash equivalents.
“We are prepared and eager for the flywheel to start turning again… Moreover, we are optimistic that with the gradual resumption of cruise operations, our cash flow from operations will sequentially improve, driven by an increase in the inflow of customer deposits” said Jason T. Liberty, executive vice president and CFO.
For Carnival Cruise line, the average monthly cash burn rate for the first half of 2021 was $500 Million. The company noted this was better than expected due to “to the timing of proceeds from ship sales and working capital changes.” Carnival noted a cash position of $9.3 Billion according to the Q2 earnings report. CCL is still confident they have adequate cash to get back to full capacity operations.
“We believe we have sufficient liquidity to get us back to full operations and continue to be focused on pursuing refinancing opportunities to reduce interest rates and extend maturities.” Carnival Corporation & plc Chief Financial Officer David Bernstein noted
In summary, both CCL and RCL stock look to bounce back strongly in 2022 based upon the current Wallstreet analyst consensus. With fast vaccination rates in the US, we can conclude that the outlook from both companies to run at capacity by spring 2022 is a reasonable assumption. However, the risk of the new delta strain may swing investor sentiment at least for the next few months. Both CCL and RCL will be stocks to watch over the next 6 months as they prepare for a full recovery.
The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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