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JPMorgan Disembarks From Positive Ratings Port On Cruise Lines; Stocks Sink

JPMorgan Drops Anchor On Cruise Line Stocks: Disembarked From Positive Rating|NYSE:RCLNASDAQ:NCLHNYSE:CCL

Citing limited upside in net yields/pricing, JPMorgan has downgraded Royal Caribbean Cruises Ltd RCL 3.26% and Norwegian Cruise Line Holdings Ltd NCLH 5.48% to Neutral from Overweight, while maintaining its Neutral stance on Carnival Corp CCL 1.73%.

“[W]e do not see a meaningful fundamental turn in net yields/pricing, which, in our view, would be the biggest potential reason for investor sentiment to turn positive and/or the multiples to move higher,” analyst Joseph Greff wrote in a note.

Greff sees Norwegian as having relatively attractive EPS growth in 2017, though driven primarily by capacity. At the same, the analyst also cautioned that the company possesses the most EPS risk due to soft pricing in Europe and the Caribbean, where it has more exposure.

“CCL trades at a valuation premium to both NCLH and RCL, reflective of its relatively better Europe exposure, its solid balance sheet position and dividend yield, in our view. We view RCL’s risk-reward as in between CCL and NCLH,” Greff continued.

Greff pointed out at fewer North American passengers traveling to European destinations, capacity challenges in Caribbean, while price discipline hurting near term occupancy and onboard.

On Royal Caribbean, the analyst is concerned over declining net yields from China coupled with the ongoing weakness in Europe and potential over-supply in the Caribbean.

For Carnival, apart from rich valuation, the analyst said the company is pressured by slowing GDP growth, terrorism and Zika, along with ongoing near-term challenges in driving net ticket yields. These challenges offset the company’s strengths including leading market share, diversification potential and scale opportunities.

Greff also slashed his price targets for all the three stocks. The target price for Royal Caribbean being cut to $73 from $96, Norwegian to $44 from $62 and Carnival to $46 from $58.

Each of the three experienced negative investor reaction Thursday. At last check:

  • Carnival was down 1.68 percent at $46.36.
  • Norwegian was down 5.08 percent at $36.04.
  • Royal Caribbean was down 2.86 percent at $67.90.
Oct 2016MacquarieInitiates Coverage onNeutral
Oct 2016HSBCInitiates Coverage onBuy
Sep 2016Deutsche BankInitiates Coverage onHold

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