Nice Price on Royal Caribbean
We maintain our Buy rating for Royal Caribbean Cruises (RCL) following the release of first quarter financial results, primarily due to valuation. The current top-line environment appears to be improving, and we consider RCL to be poised to strongly benefit given an increase in demand.
While we expect higher fuel prices going forward to remain challenging, we believe that core operating growth will remain attractive. Considering the existing parameters of the shares, we consider the current valuation to be attractive.
Solid occupancy trends, a more stable pricing environment, and higher spending per passenger should allow the company to continue to leverage fixed costs and offset much of the inflationary pressures from higher fuel, employee-related, and food costs.
The shares of Royal Caribbean are currently trading at 10.7x our 2008 earnings estimate and at a 15% discount to its largest rival. The shares traded down as much as 8% following the release of Q1 earnings, before closing the day down only 3.5%. Much of the downward revision to our estimates stems from record-high fuel prices, as top-line demand remains healthy and the company continues to implement additional cost controls.
Our six-month target price of $38 for Royal Caribbean is based on a P/E multiple of approximately 13x our 2008 earnings estimate. We maintain our Buy rating for Royal Caribbean.
ZymoGenetics a Buy Pre-Earnings
ZymoGenetics, Inc. (ZGEN) is a biopharmaceutical company focused on the discovery, development and commercialization of therapeutic proteins for the prevention or treatment of human diseases. Recent approval of rhThrombin by the FDA and the clinical progress made by the company will drive the value for the company.
We believe rhThrombin will provide significant boost to the company's top-line growth in the coming quarters. Other candidates should provide long-term growth for the company.
ZymoGenetics reported better than expected fourth quarter financial results. Revenue in fourth quarter was $20.5 million, much higher than our estimate of $9.3 million and than First Call consensus of $6.3 million. Net loss per share was -$0.56, versus our estimate of -$0.60, and consensus of -$0.70. The FDA recently approved ZymoGenetics rhThrombin for topical hemostasis in surgical procedures.
Although rhThrombin faces competition from plasma-derived thrombin products, rhThrombin has advantages over existing plasma derived thrombin. Therefore, rhThrombin will capture a fair market share in the thrombin market and will provide a significant boost to ZymoGenetics top line growth in the coming quarters. ZymoGenetics has a robust pipeline targeting a variety of diseases such as cancer, autoimmune disorders and hepatitis C.
We are impressed with the progress the company has made in the past quarter in terms of clinical development. We are expecting more data in 2008.
