Company ProfileÂ (excerpt from Reuters): Royal Caribbean Cruises Ltd., incorporated on July 23, 1985, is a cruise company. The Company owns and operates three global cruise brands: Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises (Global Brands). The Company also own joint venture interest in the German brand TUI Cruises, interest in the Spanish brand Pullmantur and interest in the Chinese brand SkySea Cruises (collectively, Partner Brands). Together, its Global Brands and its Partner Brands operate a combined total of 49 ships in the cruise vacation industry with an aggregate capacity of approximately 123,270 berths, as of December 31, 2016. As of December 31, 2016, the Company’s ships offer a selection of itineraries that call on approximately 535 destinations in 105 countries, covering all seven continents.
Downloadable PDF version of this valuation:
ModernGraham Valuation of RCL – June 2018
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$22,515,040,396||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||0.20||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Fail|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||274.19%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||15.90||Pass|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||2.13||Pass|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||0.20||Fail|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||-1.84||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||15.00%|
|MG Value based on 3% Growth||$96.94|
|MG Value based on 0% Growth||$56.83|
|Market Implied Growth Rate||3.70%|
|% of Intrinsic Value||41.31%|
Royal Caribbean Cruises Ltd does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.26 in 2014 to an estimated $6.69 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.7% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Royal Caribbean Cruises Ltd revealed the company was trading above its Graham Number of $98.41. The company pays a dividend of $2.16 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 15.9, which was below the industry average of 49.49, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-57.54.
Royal Caribbean Cruises Ltd receives an average overall rating in the ModernGraham grading system, scoring a C.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$57.54|
|Number of Consecutive Years of Dividend Growth||7|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||3/1/2018|
|Total Current Assets||$1,034,526,000|
|Total Current Liabilities||$5,195,154,000|
|Shares Outstanding (Diluted Average)||213,602,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$8.58|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$6.69|
Other ModernGraham posts about the company
None. This is the first time ModernGraham has covered the company.
Other ModernGraham posts about related companies
The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.
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