COMPANY DESCRIPTION

Royal Caribbean Cruises is a cruise company. Co. owns Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Club Cruises, and CDF Croisieres de France and a 50.0% joint venture interest in TUI Cruises. Co.'s ships operate on a selection of worldwide itineraries that call on approximately 490 destinations. As of Dec 31 2013, Co. operated 41 ships with approximately 98,750 berths. Co.'s cruise brands provide onboard services, amenities and activities including gaming, the sale of alcoholic and other beverages, gift shop items, shore excursions, photography, spa/salon and fitness services, art auctions, catalogue gifts for guests and a range of restaurants and dining options. 

 

ECONOMIC MOAT

RCL’s moat is based on its oligopolistic position. Royal Caribbean, Carnival, and Norwegian, which combined control nearly 90% of the North American cruise market.  RCL’s brand and unique assets (their ships) give them a competitive advantage. The capital-intensive nature of the business also discourages potential competitors without deep pockets or the ability to obtain significant amounts of financing from attempting to take share in the segment.

 

OUTLOOK

Royal Caribbean reduced its 2015 earnings projection. The company's reduced outlook is mostly due to the strengthening U.S. dollar. A stronger domestic currency makes revenues earned abroad less valuable in dollar terms, which is particularly harmful in the cruise line industry owing to its global nature. The company expects to make billions of dollars in capital expenditures in the coming years, in addition to elevated levels of capital spending. The rise in capacity should be especially accretive to profits, as new ships yield significantly more revenue per berth (occupancy unit) while costing less to run. These shares have solid long-term appreciation potential.

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STRENGTHS

  • Major brands addressing diverse customer segments

  • Strong market presence in major cruise markets 

WEAKNESSES

  • Significant level of indebtedness may impact the company’s financial flexibility 

THREATS

  • Stringent environmental legislation and regulations

  • Intense competition could affect the company's growth 

OPPORTUNITIES

  • Partnership with Ctrip.com may help RCL in its expansion efforts in the Chinese cruise market

  • Favorable trends in global cruise industry 

The above report is for information purposes only, and is not a solicitation or offer to buy or sell any securities. Past performance is no guarantee of future performance. Neither diversification nor asset allocation ensures a profit or guarantees against loss. Before investing, investors should consider their risk tolerance, investment objectives, time horizon, available capital, and charges and expenses.  

 

The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.

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