On Thursday, Mizuho (NYSE:MFG) Securities adjusted its outlook on Royal Caribbean Cruises (NYSE:RCL) shares, reducing the price target to $253 from $255. Despite this change, the firm maintained an Outperform rating on the cruise line’s stock. The adjustment comes as RCL trades near its 52-week high of $258.70, having delivered an impressive 89.5% return over the past year. According to InvestingPro analysis, the stock currently appears overvalued based on its proprietary Fair Value model. Mizuho’s analysis indicates that Royal Caribbean is likely to encounter a significant financial headwind affecting its earnings before interest, taxes, depreciation, and amortization (EBITDA).
The expected headwind, estimated between $110 million and $115 million, stems from current fuel prices and foreign exchange rates. The firm’s assessment suggests that foreign exchange challenges could represent a $90 million drag on the company’s performance in 2025, with currency fluctuations against the dollar amounting to approximately a 4% year-over-year change. This could translate to a 1.2% adverse impact on net yields compared to the previous year. For every 1% shift in the foreign exchange basket, Royal Caribbean’s EBITDA could see an estimated $22 million impact.
Fuel costs, on the other hand, were reportedly close to the company’s fourth-quarter guidance, with a minor $1-2 million improvement. However, the forecast for fiscal year 2025 includes an additional $15-20 million burden when compared to earlier projections. Mizuho’s current models place fuel expenses at $284 million for the fourth quarter of 2024 and $1.144 billion for the entirety of 2025.
The combined effect of foreign exchange and fuel expenses is anticipated to reduce Royal Caribbean’s earnings per share (EPS) by around $0.40 in 2025. Despite these challenges, Mizuho believes that Royal Caribbean’s previously stated goal of achieving an EPS in the 14-dollar range for 2025 remains achievable, even when accounting for the effects of foreign exchange and fuel costs. With the company’s next earnings report due on January 28, 2025, investors can access comprehensive analysis and forecasts through InvestingPro’s detailed Research Report, part of its coverage of over 1,400 US stocks.
In other recent news, Royal Caribbean Cruises has been the focus of several analyst reports. Bernstein research firm maintained its Outperform rating on the company, forecasting yield growth in the cruise sector to surpass that of hotels by 2025. The firm also highlighted Royal Caribbean’s impressive revenue growth of 22% in the last twelve months and a robust increase in cruise demand. Stifel, another financial services firm, increased its price target for Royal Caribbean, citing the company’s growth prospects and ability to exceed market expectations. The firm also sees potential in Royal Caribbean’s land-based projects.
On the other hand, Truist Securities reduced its price target for Royal Caribbean but maintained a Buy rating, recognizing the company’s strategic investments aimed at enhancing the cruise experience. Bernstein initiated coverage on Royal Caribbean with an Outperform rating, noting the company’s improved return on invested capital and expanded EBIT margins. The firm anticipates an upcoming inflection point in free cash flow, contributing to an attractive earnings per share narrative.
Tigress Financial Partners increased the 12-month price target for Royal Caribbean, citing robust cruise demand driving revenue and cash flow growth. Macquarie maintained its Outperform rating on Royal Caribbean and increased the price target, reflecting the company’s consistent performance surpassing both guidance and market expectations. These are recent developments in the investment landscape surrounding Royal Caribbean.
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