Tuesday, January 31, 2023
HomeMarketNorwegian Stock Is a Buy, Royal Caribbean Is a Sell, Says Analyst....

Norwegian Stock Is a Buy, Royal Caribbean Is a Sell, Says Analyst. Here’s Why.

J.P. Morgan analyst Daniel Adam cut his price target on Royal Caribbean to $47 from $106.

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Norwegian Cruise Line Holdings
has strong growth opportunities, while
Royal Caribbean Group
will be dealing with near-term funding requirements, according to a J.P. Morgan analyst.

Daniel Adam assumed coverage of Royal Caribbean (ticker: RCL) with an Underweight rating from Overweight and slashed the price target to $47 from $106. Adam also assumed coverage of Norwegian Cruise Line (NCLH) with an Overweight rating. The 12-month price target was reduced to $30 from $35.

The J.P. Morgan analyst wrote in a research note that despite Royal Caribbean’s roughly $10 billion in capital raises this year and free cash flow generation that should cover most future commitments “our analysis suggests that Royal Caribbean could face an approximate $400 million funding shortfall by the end of next year.” He added that in order for the company to hit its investment grade credit rating target by 2025, it will most likely need to raise another $3.5 billion “via either equity or asset sales.”

“At current levels, a $3.5 billion equity deal would be about 20% dilutive to shareholders,” Adam wrote.

Royal Caribbean didn’t immediately respond to a request for comment. Shares of the cruise line were down 4.3% Tuesday to $56.86. The stock has fallen 26% this year.

Adam has a much more optimistic view of Norwegian Cruise Line, and said the stock was his top pick in the sector. He wrote that his positive outlook of the stock is due to its “outsized growth potential versus peers, as Norwegian has a smaller, nimbler, and younger fleet with premium pricing.”

He added that the company’s strong opportunity for growth is a positive as cruise demand increases.

Cruise customers have been waiting to get back aboard after the Covid-19 pandemic shut down the entire industry. Now that restrictions have been lifted for travelers, cruise lines have cited strong demand going into the new year.

Shares of Norwegian were falling 3.5% to $15.65. The stock has declined 24% this year. The
S&P 500
was down 1.1% on Tuesday.

Write to Angela Palumbo at angela.palumbo@dowjones.com

Credit: marketwatch.com

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