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Wells Fargo removes RCL from its Priority List while reiterating 'buy' rating

Wells Fargo removes RCL from its Priority List while reiterating 'buy' rating
Wells Fargo Securities removed Royal Caribbean Cruises Ltd. from its Equity Research Priority Stock List but underscored it remains positive on the company's fundamentals and management leadership/strategies.

This is reflected in the brokerage's 'outperform' (buy) rating for RCL.

Wells Fargo referred investors to its Nov. 16 research note, which raised Royal Caribbean's valuation range to $107 to $112, from $102 to $107. That is based on a 17 to 17.8 price to earnings multiple of the brokerage's 2016 earnings per share estimate for RCL of $6.29 and a 13.6 to 14 multiple of its enterprise value to EBITDA estimate of $11.58.

That note expressed Wells Fargo's view that Royal Caribbean is well positioned as the No. 2 global cruise player in a consolidated industry with high barriers to entry and solid growth prospects thanks to favorable demographics and low penetration of the vacation market.

'The mix of Oasis-, Solstice- and Quantum-class ships should improve net yields and leverage costs. A lower cost structure, international expansion and 4% to 5% industry capacity growth through '18 should also benefit operating results, allowing for deleveraging and modest multiple expansion,' Wells Fargo analyst Tim Conder said in that November note.

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