Royal Caribbean Added to Goldman's Conviction Buy List

Goldman Sachs is adding Royal Royal Caribbean Cruises (NYSE:RCL) to the Conviction Buy List given the relative appeal compared to our other sectors/companies. Royal has easy comps and is near trough valuation and margins whereas lodging and gaming show more extended valuation and likely a more difficult earnings outlook. Firm's CL designation is based on less downside risk for Royal versus other sectors. The stock is down 18% YTD and even with recent bad news (higher oil, downward revisions) it seems to have found a bottom. Any signs of good news on the consumer front could send this stock higher. GSCO's $45 12-month Royal price target is based on blended PE/DCF analysis.

This is follow on to firm's late January note (01/27/08) when they highlighted Royal as an early stage consumer rebound stock. Since then, the company reported 4Q2007 net yield growth well above expectations (11% vs 9% estimate) repeating a string of stabilizing/solid demand trends that we saw from Carnival and Norwegian. Firm still expects net yield expectations to be met as, 1) they are against easy comparisons, and 2) the mix shift towards higher priced Europe/Alaska and bigger ships creates pricing momentum.

GSCO notes that their 2008 EPS forecast is below consensus ($3.00 vs $3.27) as theirs incorporates higher fuel forecasts. However, given the visibility of higher fuel they suspect downward revisions are already in the stock.

Notablecalls: It certainly looks like Goldman is the early bird in RCL. I certainly like it. Expect to see buy interest today.

The sector is beaten down and out-of-favor and now we have the ultimate tier-1 firm out very positive. on the best name. Watch CCL as well when RCL gets going.