Royal Caribbean Stock Will Outperform, Analyst Says – Barron’s

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Royal Caribbean Cruises stock is higher on Friday, following an upgrade from Macquarie. The bank argues that even though the cruise operators third-quarter results might be messy, strong trends should boost the stock, which is trading at an attractive valuation.

The back story. Royal Caribbean stock (ticker: RCL) is up 13.3% year to date, trailing behind Norwegian Cruise Line Holdings (NCLH) and the S&P 500 index, but ahead of Carnival Corp. (CCL). Royal Caribbean slipped after its most recent earnings report in July, as investors worried about its financial forecasts, and the group took a hit from concern over the impact of Hurricane Dorian last month.

On the positive side, CEO Richard Fain was named one of the 30 Best CEOs by Barrons this year.

Whats new. On Friday, Macquarie analyst Paul Golding boosted his rating on Royal Caribbean to Outperform from Neutral, and raised his price target by $6, to $132. The stock was up 1.4% to $110.79 near midday.

He writes the company is a best-in-class operator, a view he said is further solidified by the positive momentum in Asia something that has eluded peers.

Looking ahead. Late last month, Carnival shares sank after its earnings report, but Golding is more upbeat about Royal Caribbeans results, due out next week. He notes that the results could be messy but argues that Hurricane Dorian was a one-time event, while interest in advanced bookings remains strong. With Royal Caribbeans shares at a current near-trough price-to-earnings multiple, we see substantially more upside than downside, even if leverage is higher than peers, he wrote.

That said, he did lower his third-quarter adjusted earnings per share estimate by eight cents, bringing it below the Wall Street consensus, to account for Dorians impact.

He also reiterated an Outperform rating and $65 price target on Norwegian Cruise Line, writing that the companys strong pricing, nimble fleet, and continued positive overall advanced bookings excluding September merit a much higher multiple. Norwegians earnings are due out in early November.

Write to Teresa Rivas at teresa.rivas@barrons.com

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Royal Caribbean Stock Will Outperform, Analyst Says - Barron's