One thing we could say about the analysts on Royal Caribbean Cruises Ltd. (NYSE:RCL) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
Following the latest downgrade, the current consensus, from the 16 analysts covering Royal Caribbean Cruises, is for revenues of US$7.5b in 2020, which would reflect a sizeable 32% reduction in Royal Caribbean Cruises' sales over the past 12 months. After this downgrade, the company is anticipated to report a loss of US$1.69 in 2020, a sharp decline from a profit over the last year. Prior to this update, the analysts had been forecasting revenues of US$11b and earnings per share (EPS) of US$8.57 in 2020. There looks to have been a major change in sentiment regarding Royal Caribbean Cruises' prospects, with a sizeable cut to revenues and the analysts now forecasting a loss instead of a profit.
The consensus price target fell 10% to US$87.44, implicitly signalling that lower earnings per share are a leading indicator for Royal Caribbean Cruises' valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values Royal Caribbean Cruises at US$165 per share, while the most bearish prices it at US$19.00. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely differing views on what kind of performance this business can generate. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast revenue decline of 32%, a significant reduction from annual growth of 5.7% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 8.6% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Royal Caribbean Cruises is expected to lag the wider industry.
The Bottom Line
The biggest low-light for us was that the forecasts for Royal Caribbean Cruises dropped from profits to a loss this year. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
Worse, Royal Caribbean Cruises is labouring under a substantial debt burden, which - if today's forecasts prove accurate - the forecast downgrade could potentially exacerbate. To see more of our financial analysis, you can click through to our free platform to learn more about its balance sheet and specific concerns we've identified.
Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.
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