In a note Wiilliam Blair analyst Sharon Zackfia said RCL shares have dropped about 15% so far in January and are now trading at 14 times the brokerage's 2016 EPS estimate.
'We see value in Royal’s shares from current levels given underlying drivers and articulated financial targets that we expect to yield outsized earnings growth in 2016 while ROIC steadily improves toward the company’s targeted double-digit goal,' Zackfia told investors in reiterating an 'outperform' (buy) rating.
When RCL reports fourth quarter 2015 results on Feb. 2, William Blair expects the cruise operator to meet or beat the brokage's 90-cent EPS estimate, in line with guidance and the 92-cent consensus estimate.
Zackfia projects Q4 constant-currency net yields at or slightly above the high end of guidance of up 4.5% to 5%, driven by healthy mid- to high-single-digit net yields in the Caribbean, which accounted for 47% of the company's capacity, and superior yields from Quantum of the Seas. She thinks constant-currency net cruise costs excluding fuel also could be slightly better than guidance for a 4% decline.
William Blair's distribution channel checks indicate wave season has been 'solid so far in January, with particularly strong pricing in the Caribbean,' and Zackfia added it's the strongest pricing the brokerage has seen since 2014.
With a strong finish to 2015 and a solid start to 2016, RCL's initial 2016 constant-currency net yield guidance could come close to its initial 2015 yield guidance of up 2.5% to 4.5%, Zackfia said. She raised the brokerage's constant-currency net yield projection to 3.5% from 3% and told investors Q1 is likely to be the strongest quarter, up 4% to 5%. That's due to an easy year-ago comparison and a heavier weighting of Caribbean itineraries.
The 2016 EPS estimate goes up 32 cents, to $6.27, slightly above the $6.21 consensus, reflecting a higher yield expectation and the year-to-date slide in bunker fuel cost. Zackfia thinks full-year EPS could get a boost of roughly 50 cents (gross) from lower fuel prices, which will be partly offset by the stronger dollar that could eat into EPS by 15 cents to 20 cents.
William Blair's Q1 EPS estimate for RCL is 53 cents, above the 43-cent consensus.
Shares opened at $85.84 Monday. In the last 52 weeks, RCL has traded as high as $103.40, on Dec. 30.