Net yields should benefit from the Quantum newbuilds, global capacity distribution and customer sourcing, China, Celebrity Cruises' 'ongoing solid improvement,' minimization of Pullmantur's drag and enhanced consumer engagement, the brokerage said in a note.
Wells Fargo hosted Royal Caribbean management for investor meetings Monday and Tuesday.
The company is well-positioned in Europe thanks to its greater exposure to northern Europe with Allure of the Seas' UK deployment next year, analyst Tim Conder said. He added that newer ships compared to a 2006 fleet base produce 25% higher yields and have 20% lower operating costs, resulting in three to 3.5-times higher earnings before interest, taxation, depreciation and amortization.
Conder said moderate 3% to 5% average capacity growth and controlled costs leave revenue opportunities as the key to deliver 2017 targets of earnings per share of approximately $6.90 and greater than 10% return on invested capital.
The TUI Cruises joint venture newbuilds, a ship management service contract with China's Ctrip—but no potential joint-venture partnership—and the caution 'cushion' that something will go wrong are other assumptions, along with achieving investment grade rating, nothing higher, in the near future (Wells Fargo believes by the end of 2015).
On China, the brokerage pointed to the government's supportive five-year cruise plan, the growing middle class and the expectation that higher ticket yield and on-board spending should more than offset inaugural costs for Quantum of the Seas. China ticket pricing and on-board spending were reported to be the highest of any global region.
Near-term restraints include transit port infrastructure in Vietnam, Thailand, the Philippines and Indonesia and educating Chinese consumers about cruising.
Wells Fargo reiterated its 'outperform' rating for RCL, its $3.55 EPS estimate for 2014 and its $4.65 forecast for 2015.
Royal Caribbean closed at $67.29 on Tuesday.