RCL's Valuation Attractive
We maintain our Buy rating on
Royal Caribbean Cruises (
RCL) following the release of Q2 results, primarily due to its valuation. The current top-line environment appears to be resilient, and we consider RCL to be poised to strongly benefit given an increase in demand. While we expect higher fuel prices to remain challenging, we expect the newly announced cost-saving initiative to provide significant benefits. We also believe that core operating growth will remain attractive.
With the shares currently trading at 10.3xour 2008 earnings estimate and at a 30% discount to its largest rival, we consider the current valuation to be attractive.
On July 22, RCL reported financial results for Q2 08. Total revenue increased 6.9% from the prior year to $1.6 billion and was in line with our expectation. Passenger ticket revenue increased 6.9% from the prior year to $1.1 billion. Net revenue yield and available passenger cruise days (APCD) increased 1.0% and 5.3% from the prior year, respectively. Occupancy decreased 200 basis points from the prior year to 104.0%. Onboard and other revenue increased 7.1% from the prior year to $443.7 million.
However, revenue and earnings growth is largely dependent on the company's ability to generate favorable pricing, increase occupancy and improve operational efficiencies. The company is susceptible to impact from changes in the cost of crude oil. A cyclical downturn in the U.S.economy or another terrorist-related event similar to 9/11 could adversely affect demand for cruises. Natural disasters, notably hurricanes, could have a negative impact on financial results, given that nearly two-thirds of the company's capacity is located in the Caribbean.
ConocoPhillips
ConocoPhillips (
COP), a large integrated oil company with operations in 40 countries, is operating on all cylinders as it beat analysts' estimates for the second quarter despite escalating consensus estimates over the last 30 days.
The company operates four segments: Exploration and Production; Refining and Marketing; Natural Gas Gathering and Processing and Chemicals and Plastics.
In the Exploration and Production segment, COP has operations in 23 countries and production in 16 countries.
ConocoPhillips is the second-largest refiner in the United States and the fifth-largest, that isn't government controlled, in the world.
