Royal Caribbean Cruise Line’s “Ovation of the Seas” on December 29, 2017 in Sydney, Australia. The cruise … [+]
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With the consent of Pfizer
PFE
and Moderna’s vaccines in December 2020, the shares of leading hotel companies Hyatt (NYSE: H), Marriott and Hilton saw strong gains, driven by expectations of a rapid recovery in travel demand. Interestingly, after last week’s rally, hotel stocks have hit pre-Covid levels, while stocks in cruise lines, Royal Caribbean (NYSE: RCL), Carnival and Norwegian Holdings remain cautious. Does this indicate a buying opportunity in RCL? Trefis compares historical stock price trends between hotel stocks and Royal Caribbean Cruise
RCL
in an interactive dashboard analysis H stock has a 56% chance of rising next month after rising 5.2% in the past 5 days.
Royal Caribbean has better foundations than Hyatt
Prior to the pandemic, Royal Caribbean’s revenue growth was much faster than Hyatt’s, due to increasing capacity and stable occupancy. Royal Caribbean revenue rose 24% from $ 8.7 billion in 2017 to $ 10.9 billion in 2019, while Hyatt’s revenue increased 12% over the same period. Since Hyatt sold its own hotels to grow its franchise business, net margins are affected by gains or losses. So we compare the operating cash flow margin to identify better ways to generate cash.
In 2019, Hyatt and Royal Caribbean reported operating cash flow margins of 8% and 34%, respectively. Hyatt recorded an operating cash outflow of $ 611 million in 2020 compared to $ 396 million in 2019. However, Royal Caribbean recorded an operating cash outflow of $ 3.7 billion compared to $ 3.7 billion in the Year 2019. Thus, Royal Caribbean can recoup its pandemic losses within the company one year compared to a larger period of time it takes Hyatt.
Hyatt 21 days of performance
Trefis
Hotel and cruise stocks have outperformed broader markets this year
Over the past twenty-one days, shares of Royal Caribbean, Hyatt, Marriott and Hilton have gained 35%, 28%, 22% and 19%, respectively. Looking at performance over the past five and ten days, the rally appears to be strengthening despite stagnation seen in the broader markets. Cruise companies also observed pent-up demand in the second half of 2021. Given the continued momentum in the travel sector, we believe there is significant room for growth in Royal Caribbean stock.
As the decline in demand for travel continues to weigh on the hospitality sector, 2020 has created many price discontinuities that can provide attractive trading opportunities. For example, you might be surprised how the stock valuation is for Expeditors International v LGI Homes
LGIH
shows an interruption in their relative operational growth. You can find many of them discontinuous pairs here.
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