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Asia-Pacific demand driving RCL capacity growth: Wm. Blair

Asia-Pacific demand driving RCL capacity growth: Wm. Blair
In the next five years the majority of demand for Royal Caribbean capacity growth is expected to come from the Asia-Pacific region, with more moderate growth in the Caribbean and European markets, William Blair & Co. said in a note.

Based on current orders, RCL projects about 4.4% gross capacity growth during that period.

China was a key point of discussion by Royal Caribbean management at William Blair's 35th Annual Growth Stock Conference.

The country continues to generate significant premiums over the rest of the world, with good on-board spending in retail and gambling and a younger average passenger, William Blair analyst Sharon Zackfia said, citing Royal Caribbean cfo Jason Liberty.

Royal Caribbean's China capacity is expected to grow to 9% next year from 6% of total capacity this year.

'Given the embryonic nature of the market, management believes there is a long way to go before China's superior profitability normalizes to the average,' Zackfia said.

Embedded in RCL's 2015 constant-currency net yield guidance of 2.5% to 4% are mid-single-digit gains in Europe, low-single-digit gains in the Caribbean and low- to mid-single-digit gains in Asia-Pacific.

William Blair continues to project 2015 earnings per share of $4.53 for RCL, up 34% and compared to the Wall Street consensus of $4.58, on a 3% to 3.5% increase in constant-currency net yields.

Zackfia noted Royal Caribbean shares have risen 7% over the past month and are now trading at 17 times William Blair's 2015 EPS estimate.

The brokerage, which rates RCL 'outperform' (buy), continues to see value in the stock from current levels given 'underlying drivers and articulated financial targets that seem likely to yield healthy 25%-plus EPS growth over the next few years while steadily improving return on invested capital to the company's targeted double-digit goal,' Zackfia said.

RCL closed at $77.62, down 57 cents, on Tuesday.

 

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