Analyst Note| Jaime M. Katz, CFA |
No-moat Royal Caribbean printed a second-quarter adjusted EPS loss of $5.06, which was wider than the $4.14 loss we had modeled, as the firm was facing larger return to cruise costs than originally anticipated, burning $330 million per month (versus the $250 million-$290 million per month the firm previously guided to). Our thesis anticipated a lumpy expense trajectory as the redeployment of the fleet ensued, which appears to be occurring faster than we initially anticipated. Royal already has 29 ships on the seas (42% of its capacity), but expects 60% of the fleet to be operating by the end of August, with 80% up and running by year end—we thought just over half the fleet would be carrying passengers by December 31, 2021. Faster deployment, along with apparently robust demand for the cruise product, should allow us to maintain our $68 fair value estimate, rendering shares fairly valued.