Credit Suisse- Initiating Royal Caribbean (RCL) with a Neutral.

Credit Suisse is initiating coverage of Royal Caribbean Cruises (NYSE: RCL) with a Neutral. Credit Suisse analyst, T. Ramskill put a Target Price on RCL of $32.80 He believes that RCL shares are a better buy than rival Carnival Cruise (NYSE: CCL).

"Magnitude of rising yield guidance is key: ahead of Q1 results (expected 28 Apr) we are raising our FY10 and FY11 EPS forecasts by 17% and 18% largely reflecting net yield assumptions at the higher end of the company's range and following encouraging booking commentary from CCL. More geared than CCL to yield recovery: we now forecast RCL to deliver 5.2% net yield growth in FY10 (from 3.5%), at the upper end of the 3-6% guidance range. Whilst the stronger relative performance vs CCL (where we forecast yields up 2.8% in const $s) reflects hardware premiums mix,critically the gearing into yield recovery is 2x greater on our estimates (1% yield change gives +/-12% EPS vs +/-6% for CCL)."

Catalysts:

“We expect RCL to report Q1 results on 28 April. CCL and RCL trading on identical multiples: CCL has historically enjoyed a 20% PE premium to RCL yet both stocks
currently trade on PEs of 17-18x 2010E and 15x 2011E. We believe RCL is the riskier play given the greater operational and financial leverage but believe parity valuations can be maintained if net yields continue to nudge higher. From a sector stand point we see greater upside EPS risk from exposure to corporate spend driven hotels and airlines, namely IHG and British Airways. We set our revised RCL target price at $32.80 based on a 2011E PE of 14.5x equal to the NTM average multiple during the period 2003-2007 (the last cruise recovery cycle).”