Share price of Royal Caribbean Cruises Ltd. (RCL) increased 6% on Dec 2, 2014 after it was announced that this leading cruise operator will join the S&P 500 Index. The company will replace Bemis Company, Inc. (BMS) – a packaging products company on the large-cap S&P 500 Index after the closing bell on Thursday, Dec 4, 2014. Bemis will in turn join the S&P MidCap 400 Index.
The S&P 500 is one of the most commonly used benchmarks for the overall U.S. stock market. To be added to the S&P 500 list, a company should have a market capitalization greater than $5 billion. As of Dec 1, 2014, Royal Caribbean’s market capitalization was $16.4 billion.
Royal Caribbean now joins another leading cruise operator Carnival Corp. (CCL) in the hotels, resorts and cruise lines segment of the S&P 500 Index. We believe that the news cheered traders, thereby leading to the positive movement in share price. In fact, year to date, Royal Caribbean’s shares have soared 65% to $76.75.
With the exception of the Mar 2014 quarter, the company has recorded consistent improvements in earnings and revenue growth since the beginning of 2013 on the back of its continued efforts.
The company is pursuing profitability improvement initiatives aimed at generating long-term cost savings. These initiatives include the consolidation of the majority of the call centers and establishment of marketing and revenue management teams in fast growing markets.
As a part of this initiative, the company has also divested its Pullmantur brands’ non-core businesses and now intends to focus on the cruise business. Also, the company is working on the Double-Double program that aims to double 2014 earnings per share by 2017 by optimizing revenues, controlling costs and moderate growth.
Also, Royal Caribbean has been successful in dealing with the volatility in fuel prices driven by its environmental efforts.
Royal Caribbean that currently has a Zacks Rank #3 (Hold) serves more than 4 million passengers annually. Given the strength and diversity of its brands and itineraries, the company has successfully captured potential and repeat cruise vacationers. With back-to-back strong booking trends, we expect the company to continue to deliver solid results.
Diamond Resorts International, Inc. (DRII) is a better-ranked stock in the same sector with a Zacks Rank #1 (Strong Buy).
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