Royal Caribbean Cruises [NYSE:RCL] April 25 close: $31.47
52-week range: $30.11 (Apr. 24, 2008) - $45.17 (Jun. 5, 2007)
Yield = 1.90%
RCL reported excellent March quarter earnings yesterday of $0.35 v. $0.04 but the shares plunged to a new 5-year low on a reduced full-year outlook. Management guided to 2008 EPS of $2.85 - $3.00 versus a consensus view of $3.20. The main culprit is seen as higher fuel prices. RCL has begun charging passengers a daily fuel surcharge and bookings do not seem to be adversely effected so far. The past twelve months' earnings of $3.13 were an all-time record for RCL [through March 2008].
Here is a data table to illustrate RCL's past performance*
Royal Caribbean Cruises Ltd: Key Ratios
Year.......EPS........Avg. P/E .........Price/ Sales ....Price/ Book...... Net Profit Margin...Yearly High
2007.....$2.82........ 14.60............... 1.48............... 1.33...................9.8 %...................$46.40
2006.....$2.94.........13.60............... 1.75............... 1.44................. 12.1 % .................$46.80
2005.....$3.03........ 15.00............... 2.16............... 1.71................. 13.5 % .................$55.20
2004.....$2.26........ 19.40............... 2.80............... 2.27................. 10.4 % .................$55.50
2003.....$1.42........ 16.60............... 1.94............... 1.60................... 7.4 % .................$35.00
2002.....$1.63........ 11.10............... 1.02............... 0.80.................. 10.2 % ................$24.40
2001.....$1.35........ 15.30................0.98............... 0.83................... 8.1 % .................$30.30
* Source MSN MoneyCentral
RCL shares trade right now at just 10.1x trailing earnings of $3.13 - far lower than any of their average P/E levels of the past 10 years. RCL's p/sales and p/bv are also near their lows from 2001 - 2002 when the shares were hit due to the 9/11 terrorist attacks and travel was temporarily halted. Buyers of RCL shares right after 9/11/01 saw their shares go up over 600% from $7.80 to $55.50 at their 2004 high.
Royal Caribbean operates 38 ships presently and has 7 more under construction. Capacity figures to increase by 9.3%, 11.4% and 6.4% in 2009, 2010 and 2011 as the new ships come into service.
The 1.9% current yield is higher than any seen on RCL shares since 2003. The payout ratio is a moderate 20% of net profits.
Should Cuba open its ports to U.S. citizens in the future we could see a big surge in cruises in the Caribbean area. This is a wild card catalyst that is not now figured into any future projections.
Value Line is assuming a conservative long-term multiple of 14 in their 3- 5 year projections. They see RCL earning around $5.00 /share by then. Applying that 14 P/E on even the low-end estimate of $2.85 for 2008 leads to a 12-month target price of $39.90.
That goal price represents an $8.43 gain from today's close or plus 26.8%. If RCL can hit their $3 higher-end earnings goal, then $42 would look achievable. Add in the almost 2% dividend and the total return looks quite nice.
Are those prices realistic? Sure, perhaps they're way too pessimistic. Royal Caribbean shares actually traded between $46.40 and $55.50 at their peaks in each calendar year 2004-2005-2006 and 2007.
Disclosure: Author owns shares and is short puts on RCL.
52-week range: $30.11 (Apr. 24, 2008) - $45.17 (Jun. 5, 2007)
Yield = 1.90%
RCL reported excellent March quarter earnings yesterday of $0.35 v. $0.04 but the shares plunged to a new 5-year low on a reduced full-year outlook. Management guided to 2008 EPS of $2.85 - $3.00 versus a consensus view of $3.20. The main culprit is seen as higher fuel prices. RCL has begun charging passengers a daily fuel surcharge and bookings do not seem to be adversely effected so far. The past twelve months' earnings of $3.13 were an all-time record for RCL [through March 2008].
Here is a data table to illustrate RCL's past performance*
Royal Caribbean Cruises Ltd: Key Ratios
Year.......EPS........Avg. P/E .........Price/ Sales ....Price/ Book...... Net Profit Margin...Yearly High
2007.....$2.82........ 14.60............... 1.48............... 1.33...................9.8 %...................$46.40
2006.....$2.94.........13.60............... 1.75............... 1.44................. 12.1 % .................$46.80
2005.....$3.03........ 15.00............... 2.16............... 1.71................. 13.5 % .................$55.20
2004.....$2.26........ 19.40............... 2.80............... 2.27................. 10.4 % .................$55.50
2003.....$1.42........ 16.60............... 1.94............... 1.60................... 7.4 % .................$35.00
2002.....$1.63........ 11.10............... 1.02............... 0.80.................. 10.2 % ................$24.40
2001.....$1.35........ 15.30................0.98............... 0.83................... 8.1 % .................$30.30
* Source MSN MoneyCentral
RCL shares trade right now at just 10.1x trailing earnings of $3.13 - far lower than any of their average P/E levels of the past 10 years. RCL's p/sales and p/bv are also near their lows from 2001 - 2002 when the shares were hit due to the 9/11 terrorist attacks and travel was temporarily halted. Buyers of RCL shares right after 9/11/01 saw their shares go up over 600% from $7.80 to $55.50 at their 2004 high.
Royal Caribbean operates 38 ships presently and has 7 more under construction. Capacity figures to increase by 9.3%, 11.4% and 6.4% in 2009, 2010 and 2011 as the new ships come into service.
The 1.9% current yield is higher than any seen on RCL shares since 2003. The payout ratio is a moderate 20% of net profits.
Should Cuba open its ports to U.S. citizens in the future we could see a big surge in cruises in the Caribbean area. This is a wild card catalyst that is not now figured into any future projections.
Value Line is assuming a conservative long-term multiple of 14 in their 3- 5 year projections. They see RCL earning around $5.00 /share by then. Applying that 14 P/E on even the low-end estimate of $2.85 for 2008 leads to a 12-month target price of $39.90.
That goal price represents an $8.43 gain from today's close or plus 26.8%. If RCL can hit their $3 higher-end earnings goal, then $42 would look achievable. Add in the almost 2% dividend and the total return looks quite nice.
Are those prices realistic? Sure, perhaps they're way too pessimistic. Royal Caribbean shares actually traded between $46.40 and $55.50 at their peaks in each calendar year 2004-2005-2006 and 2007.
Disclosure: Author owns shares and is short puts on RCL.
