Royal Caribbean Cruises Worth $100? Wedbush's James Hardiman Explains Why

In a report published Monday, Wedbush analyst James Hardiman maintained an Outperform rating on Royal Caribbean Cruises Ltd. RCL, while raising the price target $88 to $100, due to improved yield, Fx and fuel.

Long Term Potential

According to the Wedbush report, “[T]he company’s most important market (the Caribbean) and biggest growth opportunity (China) appear to be very much on track to deliver continued upside going forward, and if this proves to be the case, Friday’s increase in the stock will prove to be just the beginning of a longer-term value-creation opportunity.”

2Q15 Results & Guidance Raise

The company reported strong 2Q results on Friday, with robust yield and cost performance. The EPS for the quarter came in ahead of the consensus, estimates and guidance.

The robust 2Q performance, along with improvements in the fuel and Fx trends led Royal Caribbean to raise its full guidance above the current consensus forecasts.

In a press release published July 31 on Yahoo Finance, Royal Caribbean reported 26 percent growth in its EPS for 2Q, while expecting the full year EPS to come in 40 percent above the 2014 level.

“Overall, the year will be another solid step towards the Double-Double. Commercially, the business continues to perform as expected and the biggest drivers of our increased guidance are better foreign exchange and fuel rates,” the press release added.

However, the company does expect an increase in costs in 2H, driven by additional marketing initiatives focused on 2016.

Estimates Raised

“While bears may point to the lower 3Q guide, we would counter with an unprecedented 4Q target,” analyst Hardiman stated.

The full year 2015 EPS estimate has accordingly been raised to the high end of the guidance range.