Royal Caribbean Cruises Ltd. - Momentum

By Zacks | November 05, 2012 AAA

Royal Caribbean Cruises Ltd. (RCL) delivered solid third quarter results last week and provided an upbeat guidance, sending earnings estimates sharply higher in the past 7 days. Shares of this Zacks #1 Rank (Strong Buy) cruise company also reached a 52-week high on the day of the announcement and have appreciated 41.3% in the past 3 months.

Sturdy Third Quarter

On October 25, Royal Caribbean posted adjusted earnings of $1.68 per share, which breezed past the Zacks Consensus Estimate by 15.9%. Efficient cost control measures were a big part of this solid performance.

Total revenue decreased 4.1% year over year to $2,226.4 million, but surpassed the Zacks Consensus Estimate of $2,214.0 million. Net yield nudged up 0.1% year over year on a constant-currency basis.

Total cruise operating expenses dropped 4.1% to $1,348.3 million. Net cruise costs, excluding fuel, increased 2.0% on a constant-currency basis (down 0.2% on reported basis).

Encouraging 2012 Guidance

For full-year 2012, management raised its earnings per share guidance to between $1.85 and $1.95 from the range of $1.70 to $1.80. Anticipation of strong revenue generation, cost reduction, and currency benefits net of oil price increases led to the hike. The net revenue yield for 2012 is expected to increase 3% at constant currency (previous range was 2-3%).

Earnings Momentum on the Rise

In the past 30 days, the Zacks Consensus Estimate for fiscal 2012 climbed 9.1% to $1.92 per share on the back of upward revisions to all nine estimates.

For fiscal 2013, the Zacks Consensus Estimate is $2.47 per share, marking an increase of 4.7% over the same timeframe. The current estimate suggests year-over-year growth of 28.4%.

Attractive Valuation

Royal Caribbean's valuation looks compelling compared with its peers by most metrics. The company is currently trading at a forward price-to-earnings (P/E) of 17.05x, an 8.5% discount to the peer group average of 18.64x. The price-to-book of 0.86x is at a 25.2% discount to the peer group average of 1.15x. Valuation looks attractive with respect to the price-to-sales (P/S) ratio as well. The P/S ratio of the company stood at 0.98, a 10.1% discount to the peer group average of 1.09. Moreover, the company's long-term estimated earnings per share growth rate remains strong at 9.7%.

Chart Reflects Strength

Royal Caribbean has been continuously outperforming its 50-day moving average over the past three months, showing a steady growth trend. The stock has also been consistently trading above its 200-day moving average since August 28, 2012. The year-to-date return for the stock is approximately 39.3%, compared with the S&P 500's return of 13.5%. Volume is fairly strong, averaging roughly 1,805K daily.

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Founded in 1968 and headquartered in Miami, Florida, Royal Caribbean operates 41 ships in the cruise vacation industry. The company has five cruise brands - Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Cruises and CDF Croisières de France. Additionally, it also has a 50% stake in a joint venture with TUI AG, which operates the brand TUI Cruises. The company currently has three ships under construction. With a market capitalization of $7.52 billion, Royal Caribbean primarily competes with Carnival Corp. (CCL).

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