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Wells Fargo expects RCL's Q1 and full-year EPS to beat consensus

Wells Fargo expects RCL's Q1 and full-year EPS to beat consensus

Wells Fargo Securities expects Royal Caribbean's first quarter results, to be announced Friday, will reflect ongoing improvement in the North American market, with Europe and Asia tracking in line with expectations. Any negative impact following the Brussels terrorist attacks and China's performance will be a focus, the brokerage said in a note.    

Since Wells Fargo last updated its 2016 and 2017 earnings per share estimates in late March, all the primary currencies to which Royal Caribbean is exposed, particularly the British pound, have rallied, while fuel costs have increased. The company is 66% hedged for 2016 and 59% hedged for next year.

Analyst Tim Conder said Wells Fargo remains comfortable with its above-consensus forecasts of $6.30 EPS this year, 20 cents higher than the consensus, and $7.28 in 2017, 13 cents above consensus. RCL's 2015 EPS was $4.83. The brokerage forecasts Q1 profit as 33 cents per share, up from 20 cents a year ago.

Investor concerns that RCL will beat the Q1 consensus then provide disappointing guidance have been discussed 'ad nauseum by several on the sell side,' Conder said. Though Wells Fargo agrees this is likely relative to the consensus, the brokerage thinks shares already have been discounted accordingly by investors and any negative reaction will be short-lived, provided underlying fundamentals remain intact and guidance holds or is slightly raised.

Wells Fargo rates RCL 'outperform' (buy) with a valuation range of $107 to $112 per share based on a price/earnings multiple of 14.7 to 15.4 an enterprise value/EBITDA multiple of 12.3 to 12.7 to the brokerage's 2017 EPS and EBITDA estimates of $7.28 and $12.90, respectively.

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