Growth & Income Expert Sets Sail on Royal Caribbean

03/15/2019 5:00 am EST

Focus: TRANSPORTATION

Crista Huff

Editor, Cabot Undervalued Stocks Advisor

Royal Caribbean Cruises (RCL) delivers travelers to desirable and exotic destinations on all seven continents, notes growth and income expert Crista Huff, editor of Cabot Undervalued Stocks Advisor.

The company operates a total of 59 ships, with 17 on order, that are wholly-owned, or jointly-owned with companies in Germany (TUI Cruises) and Spain (Pullmantur Cruceros).

The company’s brands include Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises and Silversea Cruises. Royal Caribbean ended a joint venture with China in 2018.

Aging U.S. baby boomers are tapping into retirement accounts and spending money on leisure travel, supporting demand and pricing for cruise lines. The company is also focused on attracting the millennial generation.

CEO and Chairman Richard Fain has held that position since 1988. He recently purchased $1,990,000 of RCL shares. Wall Street expects Royal Caribbean’s earnings per share (EPS) to grow 13.1% and 11.4% in 2019 and 2020 (December year end). The 2019 price/earnings ratios (P/E) is 11.9.

Risks to owning RCL include the adverse effects of rising energy prices, a strong U.S. dollar, international political turmoil and economic downturns.

The stock pays a quarterly dividend of $0.70 per share, currently yielding 2.3%. Royal Caribbean announced a dividend increase of 16%-28% in each of the last five years during the month of September. The share count has been slowly declining for many years via share buybacks.

Like so many stocks, RCL had a volatile year in 2018. It rose to a new all-time high of $132 in January. The stock has traded quietly for five weeks, subsequent to its January 2019 run-up, presumably gathering strength for its next move.

New investors can potentially earn an 11% capital gain as RCL returns to its 2018 high of $132, at which time the stock will still be undervalued (based on current earnings estimates). I would expect the stock to rest at that point, and then to continue rising. I rate the stock a strong buy.

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