Bull of the Day: Royal Caribbean Cruises (RCL) - Bull of the Day

The leisure and travel industry has been underperforming for much of 2014, despite some relatively solid economic trends in the U.S. economy. In fact, the leisure and entertainment ETF, PEJ, has been underperforming the broad market by close to 800 basis points so far this year.

However, while the broad market trend has been relatively weak, the cruise industry has been shaping up pretty nicely as of late. Norwegian Cruises announced an acquisition which looks to further consolidate the sector, while Royal Caribbean Cruises RCL could take the industry by storm and be a great pick for investors starved for a leisure choice in this market.

Quantum of the Seas

One of the top reasons for high expectations for Royal Caribbean is its newest ship, the Quantum of the Seas. This brand new ship, which kicks off a fresh class of vessels for RCL, looks to really shift the landscape in the cruise industry, and possibly give the company a huge leg up.

That is because the Quantum will incorporate a variety of technological and entertainment features that are unseen on any other major cruise ship in the world today. These additions look to improve on a number of some of the worst parts of cruise ships, and generally just make the experience a whole lot better for everyone.

While providing these extra features are likely to bump up costs, they look to also help RCL charge more for each passenger. So hopefully the new ships will pull in higher paying customers and attract more types of people to cruises, thereby boosting RCL's prospects over the long term.

Earnings Estimates

Thanks to the consolidated market and the positive longer term outlook for Royal Caribbean, analysts have been upgrading their estimates for RCL stock. In fact, over the last sixty days, not a single estimate for RCL has gone lower for either the current year or next year EPS forecast, suggesting total agreement on Royal Caribbean's outlook.

The magnitude of these estimate revisions have also been impressive, as the consensus has jumped from $3.39/share two months ago to $3.49/share today (current year), while the consensus has moved from $4.30/share 60 days ago to $4.50/share today (next year).



Clearly, the future is looking pretty bright for RCL, and especially so when you consider the growth rates that analysts are now projecting. The current year is expected to see EPS growth of 45%, while next year looks to see nearly 29% growth, suggesting that there are plenty of opportunities for RCL in the near term.

Bottom Line

Many leisure stocks have floundered in recent months, but RCL is looking quite favorable. Not only is reduced competition bullish for the company, but its new ships look to steal market share as well.

Given these factors, RCL definitely looks like a strong pick to close out the year, especially given the rising earnings estimates for the stock. And if that wasn't enough, it is also important to consider that RCL currently has a Zacks Rank #1 (Strong Buy), so more positive trading could be ahead for this cruise operation in the near term.

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