Royal Caribbean Cruise stock has plunged almost 50% – When might RCL become a buy?

RCL Stocks Plunge

Royal Caribbean Cruises (NYSE:RCL) is desperately trying to cut operational expenses in an attempt to halt losses.
This comes amid a downgrade to the company’s stock earlier this week from a ‘buy’ to a ‘sell’ by four equities research analysts and ‘hold’ by six others. The overwhelming negative sentiment surrounding Royal Caribbean’s stock comes as the tourism industry now faces massive uncertainty with a global lockdown in place to curb the spread of coronavirus.

Following a strong 2019 for Royal Caribbean Cruises, the global coronavirus pandemic as resulted in Royal Caribbean and its rivals Carnival, and Norwegian Cruise Line each losing more than 50% of their market share in 2020 as their stocks have plunged.

As the outbreak widens, Royal Caribbean is suffering the effects of travelers canceling their cruises under advice by the US State Department.

RCL Fundamentals Graph

Waiting for a Tump bailout

In a bid to align its capital and assets with what is expected to be a virtually non-existent summer season, Royal Caribbean pulled its prior first-quarter and full-year financial forecasts. Recent government action and the heightened impact and uncertainty of the economic impact of coronavirus saw cruise liner firm boost its revolving credit capacity by $550m to boost liquidity.

Currently, the company is cutting capital spending, trimming operating outgoings, and bracing for massive layoffs for certain “special projects” to increase liquidity by a further $1.7bn over the course of the year. Royal Caribbean plans to continue reducing capital and operating costs into 2021 as well.

The latest announcements from Royal Caribbean saw its shares register a modest correction of 7.3% in premarket trading Tuesday. However, this is not enough to calm the rough recent stretch for the stock. Royal Caribbean’s shares dropped 26% in Monday’s session alone as the coronavirus panic intensified, and by 44% over the last week. The cruise liner’s shares have lost around 80% of their value since the start of this year.

With news about plans from the White House about improving health and safety procedures on cruise ships, it is still early to know what this could mean for the industry.  US President Donald  Trump’s administration said it is seeking support from Congress for a $1trn spending package that may include direct payments to everyday Americans to boost the US economy the face of the outbreak. Nevertheless, the market reacted positively to the news of on-going talks between the White House and executives of cruise lines hit the hardest by the spreading coronavirus.

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