Royal Caribbean Cruising

We maintain our Buy rating for Royal Caribbean Cruises (RCL), primarily due to valuation. Although management cited a slowdown in booking trends early in the fourth quarter, we note that fuel prices have moderated in recent weeks, and we expect the recently announced cost saving initiative to provide significant benefits.

The share price has declined sharply in recent weeks in tandem with the broad market. With the shares currently trading at 5.2x our 2009 earnings estimate and at a 40% discount to its largest rival, we consider the current valuation to be attractive.

Solid occupancy trends and a more stable pricing environment should allow the company to continue to leverage fixed costs and offset some of the inflationary pressures from higher fuel, employee-related, and food costs. The current top-line environment appears to be resilient, and we consider RCL to be poised to strongly benefit given an increase in demand.

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