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Royal Caribbean stock slips amid downgrade from JPMorgan

Shares of Royal Caribbean are off after JP Morgan downgraded the stock to Underweight and reduced its price target.

Video Transcript

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SEANA SMITH: Time for our Triple Play, three stocks that we're watching in the final 30 minutes of trading. We have Royal Caribbean, Paramount, and pot stocks. Allie Canal is also joining us here today. So let's start with my pick, and that's Royal Caribbean. JP Morgan cutting its rating on the stock to underweight. They slashed that from overweight. Also reduced their price target to 47 bucks a share on funding a concern. So $10 lower than where it's trading this afternoon.

The firm saying that Royal Caribbean could face a $400 million funding shortfall by the end of next year. This comes despite the $10 billion of capital raises so far this year. Comparing Royal Caribbean to its competitors, JP Morgan likes Norwegian, writing in a note that, quote, "it has the most forward pricing momentum of the three publicly traded players."

Allie, when we take a look at the cruise lines, clearly a very, very tough 2 and 1/2 years for many of those names. Royal Caribbean, over the last six months, barely in positive territory. So outperforming the broader market, but year to date, we're selling at losses about 25%. And if you take JP Morgan's note into account, it looks like there could be some troubling time here ahead.

ALLIE CANAL: Yeah, a lot of this has to do with that unfavorable macroeconomic environment, how that could negatively impact the sector. JP Morgan also noted that Norwegian has a smaller, younger, and more nimble fleet with that premium pricing power, as you mentioned. And I think a key story here is the ability for Norwegian to grow.

And at a time when we're seeing a lot of pent-up travel demand, if you take that and you couple that with the inflationary environment, maybe consumers want that value package that cruise ships provide. That's a good thing for the sector overall, but it seems like they favor some of those other names other than Royal Caribbean. And that's automatically going to negatively impact the stock.