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Royal Caribbean: Buy Signal After 26% Dip
28 Sep
Summary
- Bank of America upgraded Royal Caribbean to buy, seeing opportunity in its stock.
- Strong travel demand, with cruise spend reaccelerating in July and August.
- A new stake in Sandals resort chain could boost earnings significantly.
Bank of America has upgraded Royal Caribbean Cruises to a 'buy' rating, indicating that the stock's recent 26% drop from its August 5 peak is an overdone reaction. The analyst firm maintains a $330 price target, suggesting a potential 36% gain from Friday's closing price.
Despite concerns over oil prices impacting the company and consumer spending, travel demand has shown resilience. Travel spend has seen mid- to high-single-digit growth since February, with cruise spending reaccelerating to mid-teens growth in July and August. Royal Caribbean anticipates at least a 4% net yield growth in Q4 2026, the strongest in the industry, and historical net yield growth of 2-3% in 2027.
The company's recent decision to take a 50% equity stake in the Caribbean resort chain Sandals is also viewed positively. This strategic move is expected to generate stronger growth, with Royal Caribbean's expertise potentially increasing Sandals' EBITDA by the low- to mid-teens. While macroeconomic pressures remain a risk, the analyst notes that rising interest rates do not typically correlate with a negative reaction in Royal Caribbean's stock. The firm believes Royal Caribbean is well-positioned to capture further market share, supported by strong travel spend and reasonable estimates.
