Royal Caribbean Trims 2020 View Due to Coronavirus Outbreak

Zacks Equity Research
·3 min read

The Leisure industry is currently grappling with the coronavirus outbreak in China and Royal Caribbean Cruises Ltd. RCL isn’t immune to the trend. Travel warnings and cruise cancellations are starting to take a toll on the company. In fact, the outbreak has persuaded management to trim 2020 guidance.

The company announced that it has put travel restriction on those who have travelled from, to or through mainland China or Hong Kong in the past 15 days. The coronavirus outbreak has compelled the company to cancel 18 cruises in Southeast Asia. The company has also modified several itineraries.

Per management, the company anticipates 2020 earnings to be impacted by nearly 65 cents due to the cancellation of cruises. The company further added that if it has to cancel remaining cruise sailings in Asia through the end of April, it would hurt earnings by another 55 cents. Although coronavirus has primarily impacted Asia, the company has witnessed softer bookings for border business.

China remains of utmost importance to the Royal Caribbean brand.  In fact, by 2020, China’s cruise market is projected to grow to 4.5 million passengers, up from 1 million in 2015, per data from the Chinese Ministry of Transport. Further, by 2030, China is expected to become the world's second-largest cruise market after the U.S. Royal Caribbean.

During fourth-quarter 2019 conference call, the company announced that the unprecedented bushfires in Australia, and recent activities in Hong Kong and the Middle East will have a negative impact on first-quarter 2020. Moreover, the first quarter is likely to be negatively impacted by other structural elements such as the discontinuation of Cuba sailings that equals a revenue headwind of approximately 120 basis points.

Shares of Royal Caribbean have gained 9.4% in the past six months, compared with the industry’s rally of 3.3%.

Zacks Rank & Key Picks

Royal Caribbean, which shares space with Carnival Corporation & Plc CCL, currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space include The Madison Square Garden Company MSG and WW International, Inc. WW both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Madison Square Garden have gained 13.3% in the past three months.

WW International has an impressive long-term earnings growth rate of 15%.

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