Royal Caribbean Cruises' Price Target Lowered At Citi: Here's Why

In a report rolled out Sunday, Citi Research analyst Gregory R. Badishkanian and his team trimmed their price target for the stock of Royal Caribbean Cruises Ltd. RCL, from $97 to $90, after the company reported earnings last Thursday. Among other issues, analysts highlighted poor booking numbers, a strong U.S. dollar and no tailwinds derived from lower oil prices as three of the main reasons behind the earnings miss.

Related Link: Amid Downgrades, Are There Better Cruise Line Stocks Than Royal Caribbean?

Results And Guidance

For the fourth quarter of 2014, Royal Caribbean Cruises reported EPS of $0.32 (including $0.07 in FX headwinds), below the $0.42 first call consensus and the $0.35-$0.40 guidance. Net yields (ex-FX) increased 2.7 percent, versus consensus of 4.0 percent and guidance of about +3.5 percent.

Despite the weak results, management raised its guidance for fiscal 2015 (EPS expected at $4.65-$4.85, up from a previous ~$4.55 guidance, but still below consensus of $4.86; net yields expected up 2.5 percent-4.5 percent “with NCC ex-fuel expected to be up 1% or better, both in constant FX).”

On the contrary, the company issued “weaker-than-expected 1Q guidance that reflects a previously announced shift in holiday sailings and a highly promotional Caribbean environment (widely known). Importantly, net yields in the remainder of FY15 are expected to be higher YoY in the mid-single digits, which is solid. However, investor expectations have also risen with the stock outperforming the market over the last few months.”

Adjusting Estimates And Target Price

After taking a look at the updated guidance and trends, Citi decided to raise its 2015 EPS estimate by $0.20, to $4.75, and 2016 EPS estimate by $0.28, to $5.95. In addition, the firm introduced a $7.00 EPS estimate for 2017.

The price target was trimmed by $7, to $90, on the back of “softer than expected near-term operating performance.”

Citi still maintains a Buy rating on the stock.