Deutsche Bank analyst Chris Woronka believes Royal Caribbean (RCL) shares have bottomed, and the path of least resistance is now to the upside. In a research note dated Sept. 29, he upgraded RCL to “Buy” and maintained his price target at $299, indicating potential for a 15% rally from current levels.
Royal Caribbean stock has been a major disappointment for investors since early August, currently down over 20% versus its recent high.
Why Deutsche Bank Upgraded Royal Caribbean Stock
Woronka views the retreat in RCL shares as an overreaction that leaves them offering a much better risk-reward. According to the analyst, macroeconomic concerns, including elevated oil prices and fears of pressure on cruise demand, have unfairly weighed on the NYSE-listed firm.
Fuel accounts for about 7% of Royal Caribbean’s overall revenue, making the selloff somewhat disproportionate to the actual operational impact, he told clients. In fact, peer Carnival’s record Q3 earnings earlier today suggest cruise operators are successfully passing on fuel costs to their passengers amid continued robust demand for seaborne vacations.
A healthy 2.31% dividend yield makes RCL even more attractive as a long-term holding.
What to Expect From RCL’s Upcoming Earnings
Royal Caribbean itself is scheduled to report its quarterly earnings in the final week of October. Consensus is for the cruise line to record $6.35 per share of earnings (EPS) for its third financial quarter, which would represent an exciting 10.43% growth on a year-over-year basis.
That said, options sentiment heading into the firm’s Q3 print isn’t particularly bullish. The put-to-call ratio on contracts expiring mid-October sits at 1.03x currently, indicating a bearish skew.
And the lower price on those options contracts, according to Barchart’s data, is set at $$244.47, signaling potential for a more than 6% decline in Royal Caribbean shares before the earnings event.
How Wall Street Recommends Playing RCL Shares
Interestingly, Deutsche Bank is still among the more conservative Wall Street firms on RCL stock.
According to Barchart, the consensus rating on Royal Caribbean sits at “Strong Buy,” with the mean price target of about $352 indicating potential for significant further upside from current levels.
