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Wells Fargo raises estimates for Royal Caribbean on F/X, fuel

Wells Fargo raises estimates for Royal Caribbean on F/X, fuel

Wells Fargo Securities raised its earnings per share estimates for Royal Caribbean to $4.88 from $4.66 in 2015 and to $6.19 from $5.84 in 2016.

The changes reflect positive currency exchange movements net of 'modest fuel headwinds' in the second half of 2015. The brokerage also adjusted its third quarter and fourth quarter 2015 estimates to better reflect the timing of China-related revenue and expenses.

No changes were made to constant-currency net yield or expense assumptions.

Wells Fargo said inaugural expenses related to Quantum of the Seas (moving to China) and Anthem of the Seas will weigh on this year's Q2. The second half will benefit from the lack of these expenses and from having Quantum in the high-revenue-yielding China market, Anthem net yield and scale benefits, Mein Schiff 4's addition to the TUI Cruises joint venture and easier Q4 comparisons related to moderating currency exchange headwinds and the lack of North America Quantum inaugural expenses.

Recent modest increases in spot fuel pricing will negatively impact the second half this year but benefit 2016 due to a flattening of the fuel curve, Wells Fargo analyst Tim Conder said.

The valuation range of $94 to $98 remains unchanged, despite the higher estimates Over time, Wells Fargo believes RCL shares should trade at an approximate 13 to 14 times forward EV/EBITDA multiple.

Conder told investors the bottom line is that 2014 gains have been digested. He believes shares are 'positioned to resume upside as investors begin to more fully understand the changing quarterly cadence of RCL’s earnings.'

Wells Fargo rates RCL 'overweight' (buy).

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