What happened
Royal Caribbean (RCL +2.27%) and Norwegian Cruise Line Holdings (NCLH 3.03%) stocks didn't make for a pleasant sail for investors on Wednesday. The stocks of the two cruise ship operators each lost around 5% of their value on the day, following separate bearish new research notes on them from a high-profile investment bank.
So what
Morgan Stanley analysts Jamie Rollo and Thomas Allen simultaneously cut their price targets on Royal Caribbean and Norwegian that morning. Rollo now believes Royal Caribbean is fairly priced at $54 per share, down from his former level of $59. He's maintaining his underweight (read:sell) recommendation on the stock.
By the way, Rollo also made a price target cut and maintained his underweight designation on Royal Caribbean and Norwegian peer Carnival early Wednesday.
As for Norwegian, Allen's new price target on the cruise line stock is $14 (previously $18). Like Rollo with Royal Caribbean he's keeping his recommendation intact, in this case equalweight (in other words, neutral).
Both analysts have similar reasons for their moves. They opined that increasing macroeconomic risks, evidence of weaker-than-expected sales, and burdensome interest costs arising from sharply increased debt levels will put pressure on the cruise industry as a whole.
NYSE: RCL
Key Data Points
Now what
Rollo and Allen had previously cut their 2022 estimates for Royal Caribbean and Norwegian sharply. Although they're maintaining these projections, they think the risks are mounting for the two companies in 2023.
The cruise line industry was, notoriously, badly affected by the coronavirus pandemic, as its operations were almost entirely halted in the thick of it. The higher debt levels were due to companies across the sector borrowing heavily to stay solvent and ride out the effects of the global health menace.
