Monday, March 14, 2011

Royal Caribbean Cruises Ltd (NYSE: RCL) Q2 2011 Price Target

Recent price: 43.55$
P/E Ratio: 17.28
3 Months Target Price: 39$

Company Description
Royal Caribbean Cruises Ltd. is the world’s second largest cruise company, operating the Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Club Cruises and CDF Croisieres de France brands, with 40 ships and a passenger capacity of approximately 92,300, and TUI Cruises through a 50% joint venture.

These brands offer an array of onboard activities, services and amenities, including simulated surfing, swimming pools, sun decks, beauty salons, exercise and spa facilities, ice skating rinks, in-line skating, basketball courts, rock climbing walls, miniature golf courses, gaming facilities, lounges, bars, Las Vegas-style entertainment, cinemas and Royal Promenades, which include interior shopping, dining and an entertainment boulevard.

The company will introduce two more ships by the end of 2012. The current ships operate worldwide with a selection of itineraries that call on approximately 400 destinations.

Confidence Margins
Strong resistance $49.96 (-15%)
Light resistance $45 (-3%)
Light support $39.73 (+9%)
Strong support $32.85 (25%)

Even if the company is doing pretty well financially, it seems that the recent rise in the price of crude oil will have adverse effects on the future performance of the company. It is pretty clear that this scenario will have a negative impact on the performance of the stock price at least until energy prices stabilize.

Entry strategy
For the cautious investor:
Sell short the stock for 42$ or more.

For the risk-taking trader:
The June 2011 42$ out-of-the-money put option contract seems to be the right position to take, they can be acquired for about 335$ per contract.

Exit Strategy
For the cautious investor:
Buy to cover when the stock reaches 39$, or keep it until 33$ if you are more bullish in your own analysis. It is highly recommended to keep the position on check if it goes sour as a favorable upside market movement could have devastating consequences.

For the risk-taking trader:
The contracts should be kept until the underlying reaches around 39$. This should provide a satisfactory return if the underlying reaches the target price as the contracts will get in the money.

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