Royal Caribbean Sailing Higher After Upgrade

Royal Caribbean Cruises Ltd RCL is sailing higher after an upgrade.

The Analyst

Deutsche Bank analyst Chris Woronka upgraded Royal Caribbean from Hold to Buy and raised his price target from $135 to $146.

The Thesis:

June marked a shift in sentiment for cruise line stocks and it became more pronounced in July and August, the analyst said in a note.

Investors continue to re-engage on cruise stocks and there's the potential for more inflows for the balance of 2018 as comps get progressively tougher across lodging, retail and Macau gaming but relatively easier for Royal Caribbean, Woronka said.

“It is pretty clear to us RCL was a direct beneficiary of the outflow of funds from large cap gaming and lodging stocks. When we think about the market caps of the stocks collectively, we believe there is still room for RCL to attract a meaningful level of investment dollars if the sector rotation continues,” Woronka said in the note.

The analyst also finds Royal Caribbean's valuation undemanding and that many sell-side models have yet to incorporate the Silversea investment into 2019 forecasts, and he believes consensus will migrate higher.

Woronka said initial concerns on labor and other core parts of the business would potentially outpace yield growth were overblown.

Price Action

Shares were trading up 3.2 percent at $124.09.

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