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Royal Caribbean Highlights Debt Burn In Newly Added Risk Factor

Royal Caribbean (RCL) is an American global cruise line operator with a fleet of 60 ships. The company halted its cruising operations following the COVID-19 outbreak but has recently resumed business.

Royal Caribbean reported revenue of $457 million for Q3 2021, falling short of the consensus estimate of 567 million. It posted an adjusted loss per share of $4.91, which missed the consensus estimate of a $4.40 loss per share but improved from the $5.62 loss per share in the same quarter last year.

Royal Caribbean ended Q3 with $3.3 billion in cash. The company has recently raised $1 billion through the sale of senior unsecured notes maturing in July 2027. It intends to use the money to repay some of its outstanding debts as it seeks to reduce its interest costs.

With this in mind, we used TipRanks to take a look at the risk factors for Royal Caribbean.

Risk Factors 

According to the new TipRanks Risk Factors tool, Royal Caribbean’s main risk category is Finance and Corporate, representing 31% of the total 42 risks identified for the stock. Macro and Political and Production are the next two major risk categories at 26% and 19% of the total risks, respectively. Royal Caribbean has recently updated its profile with one new Legal and Regulatory risk factor.

The company informs investors that a portion of its debt is subject to variable interest rates. At the end of Q3, Royal Caribbean had about $7 billion in debt at varying interest rates. As a result, the company has cautioned that an increase in market interest rates would also increase its interest expenses. Additionally, Royal Caribbean has warned that the level of interest payments on the part of its debt that bears variable interest rates would be affected if LIBOR is replaced.

In an updated Ability to Sell risk factor, Royal Caribbean tells investors that many of its guests use commercial airline services to get to the ports where they can access its ships. The company warns that increases in air ticket prices would also increase the price of cruise vacations and may reduce the demand for its cruise services.

The Finance and Corporate risk factor’s sector average is 37%, versus Royal Caribbean’s 31%. Royal Caribbean’s stock has gained about 12% over the past year.

Analysts’ Take

In December, Berenberg analyst Stuart Gordon upgraded Royal Caribbean’s stock rating to a Hold from a Sell with a price target of $80. Gordon’s price target is approximately in-line with the stock’s current price.

Consensus among analysts is a Hold based on 4 Holds and 1 Sell. The average Royal Caribbean price target of $79 implies 2% downside potential from the current levels.

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