Royal Caribbean Cruises Ltd. Stock Downgraded (RCL)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK ( TheStreet) -- Royal Caribbean Cruises (NYSE: RCL) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity.

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Highlights from the ratings report include:
  • RCL's revenue growth has slightly outpaced the industry average of 4.0%. Since the same quarter one year prior, revenues slightly increased by 1.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has increased to $209.48 million or 14.45% when compared to the same quarter last year. In addition, ROYAL CARIBBEAN CRUISES LTD has also vastly surpassed the industry average cash flow growth rate of -78.35%.
  • The debt-to-equity ratio of 1.02 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with this, the company manages to maintain a quick ratio of 0.12, which clearly demonstrates the inability to cover short-term cash needs.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, ROYAL CARIBBEAN CRUISES LTD's return on equity significantly trails that of both the industry average and the S&P 500.
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Royal Caribbean Cruises Ltd. operates in the cruise vacation industry worldwide. It owns five cruise brands, which comprise Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Club Cruises, and CDF Croisieres de France. The company has a P/E ratio of 444.1, above the S&P 500 P/E ratio of 17.7. Royal Caribbean Cruises has a market cap of $7.75 billion and is part of the services sector and leisure industry. Shares are up 4.5% year to date as of the close of trading on Wednesday.

You can view the full Royal Caribbean Cruises Ratings Report or get investment ideas from our investment research center.

-- Written by a member of TheStreet Ratings Staff

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