Is Royal Caribbean a Worthwhile Investment?

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With shares of Royal Caribbean (NYSE:RCL) trading at around $35.40, is HUM an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

logo-royal-caribbean-cruises

C = Catalyst for the Stock’s Movement

Q4 EPS came in at -$1.80. Before impairment charges, EPS was $0.10. Q4 revenue came in at $1.81 billion, which barely missed consensus of $1.82 billion, but was still a 1.7 percent increase year-over-year. Royal Caribbean wrote down $413.9 million due to a big drop in bookings as well as reduced prices in Spain following austerity measures. It’s also widely believed that the sinking of Carnival Corporation’s (NYSE:CCL) Costa Concordia in January 2012 had a negative impact on business for the cruise industry at large. Put simply, people are less likely to board a cruise ship after seeing one sink. Q4 operating expenses were up 0.6 percent to $1.3 billion. The biggest expense of all was fuel, which shouldn’t come as a surprise. Fuel costs were up 19 percent, and Royal Caribbean spent $229.3 million on fuel in Q4, which is a 10.2 percent increase year-over-year.

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FY2012 EPS came in at $0.08, which was a steep drop compared to 2011. For the year, there were 4.8 million passengers, which was similar to 2011. The number of days spent on-ship increased 1 percent.

FY2013 EPS is expected to come in between $2.30 and $2.50. This is below consensus of $2.64, but Royal Caribbean expects record yields in the Caribbean and Alaska. It should also be noted that bookings are up over 20 percent over the past few weeks when compared to last year at this time. Furthermore, on-board spending has been higher than expected.

The real key to this story hasn’t been revealed yet. We will get to it soon. For now, let’s take a look at some important numbers prior to forming an opinion on the stock…

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