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RCL Stock Analysis - Royal Caribbean Stock Analysis - $RCL - YouTube
Channel: Learn to Invest - Investors Grow
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hi I'm Jimmy in this video we're looking
at Royal Caribbean cruises ticker symbol
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RCL the goal of this video is to better
understand the basics of their business
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what they're doing to try to avoid
bankruptcy as the whole coronavirus is
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shutting everything down and then
perhaps see if we could try to gauge
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where the stock could go over the next
couple of years okay so let's start the
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basics of Royal Caribbean's business so
Royal Caribbean is the second largest
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cruise company in the world only
Carnival Cruise is larger than them and
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over the past few years
Royal Caribbean has been able to
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gradually grow their business this is
the number of ships that Royal Caribbean
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has had in service going back to 2012
and if we're curious we can get this
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information straight out of their annual
reports so as of the end of 2019 Royal
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Caribbean has 61 ships in service now I
was curious how this compared to some of
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the other big players in the industry so
I pulled down the same information for
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both Carnival Cruise and Norwegian
cruise and like I mentioned before we
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can see that Carnival Cruise is the
largest with about a hundred and five
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ships as of the end of 2019 they're the
ones in the blue bars and no region is
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the smallest of the three
with 27 ships and service they're the
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ones in the gray bars and I'm sure it's
obvious to all of us that there would be
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a direct correlation between the number
of ships in service and the amount of
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revenue generated by each of those
shipping companies or each of those
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cruise companies and there's a few
different things that jump out to me
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about this particular chart first the
past few years have looked pretty good
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overall for the cruise industry or at
least for the revenue of the cruise
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industry and the next thing that jumped
out to me is it seems that like
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Norwegian cruise seems to have a lot of
revenue relative to Royal Caribbean in
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2019 especially when we consider when we
compare to the number of ships that they
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had in fact Norwegian had 27 ships in
service as of the end of the year and
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Royal Caribbean had 61 ships so
Norwegian has less than half of the
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ships of road Lebanon or of Royal
Caribbean yet they generated almost 60
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percent of the revenue of Royal
Caribbean so this might be an
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interesting company to dive deeper into
so if you'd be cured
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to see a deeper dive into Norwegian
please let me know in the comments below
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but for now it just may be best for us
to acknowledge that the industry was
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doing quite well leading it to 2020 but
then of course the coronavirus hit and
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just a few days ago the CDC came out and
extended the no sale order to the tail
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end of July and clearly this is going to
destroy the entire industries revenue
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now this brings us to Royal Caribbean's
ability to stay in business while
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they're not running any cruises and when
we look at their cash position or we can
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see that they had slightly less than 250
million in cash as of the end of 2019
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but obviously a lot has happened since
then
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so Royal Caribbean was able to secure
about 2.2 billion dollars in a secured
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credit facility which is basically the
same thing as a line of credit so that
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and then they had some cash on hand that
cash on hand and then they took out a
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few other pieces of debt and they had
some cash that they had taken in from
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potential cruises down the line
overall it's estimated that they have
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about 3.3 billion dollars in cash right
now
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either in cash or cash available to them
so now if we add debt to this cash chart
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where we can see that they have a ton of
debt relative to the amount of cash that
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they have at least through the end of
2019 and we know that they upped their
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debt by at least 2.2 billion
and their cash should be somewhere near
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this green line here so I suppose it's a
bit better cash relative to overall debt
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but I still think that they're gonna
have to deal with this debt one of the
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things Royal Caribbean has announced to
help deal with the debt at least in the
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short term is that they were granted a
debt holiday in Europe I believe it was
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in Germany so basically what this means
for them is that for at least a piece of
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they're dead they're not gonna have to
pay any more principal only interest and
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it seems that they should free up about
two hundred million dollars in liquidity
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throughout the year according to some of
their filings now Jess so we're on the
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same page this debt that they're
essentially getting our debt holiday
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from is not debt that you might
typically think of where they issue
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bonds or something like that
it's debt related to its debt related to
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the purchasing of some of the ships that
they have
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ships like the spectrum of the sea ship
and the anthem of the sea ship now now
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they just have to pay off the interest
on the loans that they took out to buy
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those ships so that should help it
should reduce like I said 200 million
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dollars and freed up liquidity over the
course of the year that should be a good
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thing they're also trying to get a few
more ships grouped into this debt
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holiday that are is backed by the same
institution that allowed these to happen
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if that happens they claim that should
free up about another 300 million
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dollars in liquidity now it makes sense
that cruise companies are going to
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countries and institutions outside of
the United States for help since it's
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been made clear that no bailout money is
going to go to cruise companies since
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most of them aren't US companies and I
believe that since Royal Caribbean is in
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a US company the Federal Reserve isn't
eligible to be buying their debt since
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the Fed is announced that they're going
to be buying a whole bunch of companies
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debt so that doesn't help them too much
either
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and if we're curious this is the rating
scale for the three major rating
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agencies and one key thing is Royal
Caribbean doesn't want to fall down too
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far and make their debt more expensive
the red line represents investment great
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anything above it is investment great
and anything below it is not obviously
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the very best companies fall into the
top tier the triple a tier Royal
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Caribbean has a long term credit rating
of b-double a three with Moody's a
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double B rating with SP and I could not
find a Fitch rating so obviously they're
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trying to secure as much cash and ensure
that they can stay in business as long
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as possible to prevent these ratings
from dropping down too far now I haven't
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found how much it costs for Royal
Caribbean to run their business while
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the ships are idle estimates of red
imply that it's going to be somewhere in
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the three hundred and fifty million
dollar range those estimates were in
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before they cut the deal with the
European creditors so I would expect for
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that number to drop at least a bit now
this 350 million dollar number isn't as
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clear as when I did my analysis on
Carnival Cruise since Carnival Cruise
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came out and said in their annual report
that it cost him a billion dollars a
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month to run while they're idle now I
haven't seen the same transparency from
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Royal Caribbean but like I said analyst
estimates have it in about 350 million
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- what they're saving on their debt
so I think this is a reasonable number
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for us to lean on for now so with the
3.6 billion in available cash and the
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cost-cutting measures at a minimum from
the debt relief well it seems that Royal
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Caribbean can survive for 10 months
maybe assuming they don't raise any more
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capital so our question is now is that
enough to avoid bankruptcy and
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personally I think that it may be they
may still file for bankruptcy because
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that may help them get out of some of
their current contracts and may help
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with their overall situation but I'm not
sure they have to how long does this
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coronavirus last is going to be one of
the key questions if they can get back
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on the Seas let's say by the end of
summer well I think that could their
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stock price could move to more normal
levels and once earnings per share catch
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up in let's say the next two years maybe
two maybe three years I wouldn't be
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surprised if their stock returned
towards the old highs or not even out
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the whole dies but the old range call it
80 to a hundred dollar range now I do
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think it's tricky to come up with a fair
value for this stock at this point
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because there are just so many unknowns
and their business is so heavily
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dependent on when the coronavirus ends
when they're allowed to you know start
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doing cruises again and what happens
with the overall economy there yeah
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that's a key part of their overall
business now I actually did a video
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recently called should I invest now
we'll wait for the stock market to crash
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even more and in that video I walked
through some key economic indicators to
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try to get a gauge of where the overall
economy seems to be right now this
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wasn't that long it was just a couple
with a week or two ago
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if you're curious perhaps that could be
a good next video for you to watch
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there's a link right here there's a link
in the description below and thank you
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so much for sticking with me all the way
into the video I really appreciate it
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thanks that I'll see in the next video
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