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Royal Caribbean Cruises Ltd.

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Royal Caribbean Cruises Ltd. (RCL - Free Report) delivered solid third quarter results last week and provided an upbeat guidance, sending earnings estimates sharply higher in the past 7 days. Shares of this Zacks #1 Rank (Strong Buy) cruise company also reached a 52-week high on the day of the announcement and have appreciated 41.3% in the past 3 months.

Sturdy Third Quarter

On October 25, Royal Caribbean posted adjusted earnings of $1.68 per share, which breezed past the Zacks Consensus Estimate by 15.9%. Efficient cost control measures were a big part of this solid performance.

Total revenue decreased 4.1% year over year to $2,226.4 million, but surpassed the Zacks Consensus Estimate of $2,214.0 million. Net yield nudged up 0.1% year over year on a constant-currency basis.

Total cruise operating expenses dropped 4.1% to $1,348.3 million. Net cruise costs, excluding fuel, increased 2.0% on a constant-currency basis (down 0.2% on reported basis).

Encouraging 2012 Guidance

For full-year 2012, management raised its earnings per share guidance to between $1.85 and $1.95 from the range of $1.70 to $1.80. Anticipation of strong revenue generation, cost reduction, and currency benefits net of oil price increases led to the hike. The net revenue yield for 2012 is expected to increase 3% at constant currency (previous range was 2–3%).

Earnings Momentum on the Rise

In the past 30 days, the Zacks Consensus Estimate for fiscal 2012 climbed 9.1% to $1.92 per share on the back of upward revisions to all nine estimates.

For fiscal 2013, the Zacks Consensus Estimate is $2.47 per share, marking an increase of 4.7% over the same timeframe. The current estimate suggests year-over-year growth of 28.4%.

Attractive Valuation

Royal Caribbean’s valuation looks compelling compared with its peers by most metrics. The company is currently trading at a forward price-to-earnings (P/E) of 17.05x, an 8.5% discount to the peer group average of 18.64x. The price-to-book of 0.86x is at a 25.2% discount to the peer group average of 1.15x. Valuation looks attractive with respect to the price-to-sales (P/S) ratio as well. The P/S ratio of the company stood at 0.98, a 10.1% discount to the peer group average of 1.09. Moreover, the company’s long-term estimated earnings per share growth rate remains strong at 9.7%.

Chart Reflects Strength

Royal Caribbean has been continuously outperforming its 50-day moving average over the past three months, showing a steady growth trend. The stock has also been consistently trading above its 200-day moving average since August 28, 2012. The year-to-date return for the stock is approximately 39.3%, compared with the S&P 500’s return of 13.5%. Volume is fairly strong, averaging roughly 1,805K daily.

Founded in 1968 and headquartered in Miami, Florida, Royal Caribbean operates 41 ships in the cruise vacation industry. The company has five cruise brands - Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Cruises and CDF Croisières de France. Additionally, it also has a 50% stake in a joint venture with TUI AG, which operates the brand TUI Cruises. The company currently has three ships under construction. With a market capitalization of $7.52 billion, Royal Caribbean primarily competes with Carnival Corp. (CCL).

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