More bad news for Carnival, Royal Caribbean and Norwegian Cruise Line investors

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All but one of the nation’s cruise ship stocks have taken a little water this week. Actions of Carnival, (NYSE: CCL) (NYSE: CUK) and Norwegian Cruise Line (NYSE: NCLH) fell by 3% and 7% respectively. Royal Caribbean (NYSE: RCL) was the only operator to follow the general market on the rise, up 4% for the week.

It has been a difficult week for the industry. There have been several analyst downgrades, Carnival has sold some ships, Norwegian Cruise Line has executed a secondary stock offering, and the US Centers for Disease Control and Prevention (CDC) has again extended the “No Sail”. Order “which will prevent ships from sailing in the United States. trips soon. Let’s dive into another busy week for the industry.

Image source: Royal Caribbean.

Cruise for a bruise

It was wave after wave of downgrades for cruise line operators this week. All three stocks saw their ratings lowered by analysts at Macquarie and SunTrust. All six movements were accompanied by revised downward price targets.

C. Patrick Scholes of SunTrust believes investors will be increasingly disappointed with stocks – which at the time had roughly doubled since their pandemic lows – as recovery dates continue to lengthen. He also sees that the major players in the industry are likely raising debt or equity to stay afloat, and that won’t come cheap in a struggling travel market.

JPMorgan lowered its price target on Carnival, but an even bigger dagger came from Deutsche Bank’s Chris Woronka. It has maintained its neutral rating on the world’s largest cruise operator, but painted a dark picture low profits going forward. He sees Carnival paying around $ 850 million more in interest expense by 2023 than it is now, and with more shares, it will be harder for Carnival to approach peak profitability. from last year. His model shows that the $ 4.40 per share he reported in his net income last year would be reduced to $ 2.88 per share with all the new debt spending and the inflated number of shares that the cruise line had to take responsibility to stay alive during the lull.

Carnival told investors late last week that it would have 13 ships and delay shipyards deliveries of new members to its fleet. This week, he announced that his Holland America line had sold four of his ships, resulting in even more cancellations of his growing list of denied voyages.

Norwegian Cruise Line was the worst performance of the week of the three stocks. It was weighed down later in the week after valuing 16.7 million shares in a public offering subscribed at $ 15 a share. He also valued $ 1.15 billion in notes.

You can’t fault the cruise lines for raising money now, and the climate isn’t as desperate as it was earlier in the suspension of sailing. You get a lot more bang for your buck now than three months ago, when stocks were trading half as much as they are now. However, these funding movements will make it all the more difficult to return to pre-pandemic earnings per share levels.

Finally, the CDC extension of the “No Sail Order” at the end of September is no surprise. The players had already pushed back most of their crossings to the fall season.

It wouldn’t be a surprise if this happened again, barring a dramatic resumption of the coronavirus crisis, but there has been positive news about it. Inventories of cruise lines rose briefly following promising vaccine news. The industry will have a much easier path to recovery if COVID-19 is not a burning concern.

For now, volatility will continue to play a major role for cruise line equity investors. They are not safe stocks for now, but with all three stocks well below their highs, the rally doesn’t need to be perfect. The first whiffs of a turnaround will rekindle the enthusiasm of investors and speculators.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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