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 once again extended the No Sail Order ”which will prevent ships from navigating the United States. trips soon. Let’s dive into another busy week for the industry.
Cruise for a bruise
There have been wave after wave of downgrades for cruise operators this week. All three stocks have had their ratings lowered by analysts at Macquarie and SunTrust. All six movements were accompanied by revised downward price targets.
C. Patrick Scholes at SunTrust thinks that investors will become disenchanted with stocks – which, at the time, had roughly doubled since their pandemic sales trough – as recovery dates keep getting longer. He also sees that the main players in the industry are likely to increase their debt or equity to stay afloat, and that will not be cheap in a troubled travel market.
JPMorgan lowered its price target on Carnival, but an even bigger dagger came from Deutsche Bank’s Chris Woronka. It maintained its neutral rating on the world’s largest cruise operator, but painted a grim picture of weak earnings going forward. It sees Carnival paying around $ 850 million more in interest by 2023 than it currently does, and with a larger number of shares, it will be more difficult for Carnival to approach maximum profitability from the last year. His model shows that the $ 4.40 per share declared in net income last year would be reduced to $ 2.88 per share with all the new debt spending and the inflated share number that the cruise line had to assume to stay alive during the lull.
Carnival told investors late last week it would get rid of 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 from his growing list of nixed voyages.
Norwegian Cruise Line was the worst performance of the week among 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. It also cost $ 1.15 billion in tickets.
You can’t fault the cruise lines for fundraising now, and the climate isn’t as desperate as it used to be in the suspension of shipping. You get a lot more bang for your buck now than three months ago, when stocks were trading half as much as they are today. However, these funding movements will make it all the more difficult to return to pre-pandemic earnings per share levels.
Finally, the CDC extending the “No Sail Order” until the end of September is not a surprise. The players had already pushed back most of their starts to the fall season.
It wouldn’t be a surprise if this happened again, barring a dramatic resumption of the coronavirus crisis, but there was positive news on that front. Inventories of cruise lines briefly increased thanks to promising vaccine news. The industry will have a much easier recovery path if COVID-19 is not a burning concern.
For now, volatility will continue to play a prominent role for investors in cruise securities. These are not sure stocks at the moment, but with the three stocks well above their peaks, the recovery does not have to be perfect. The first whiffs of reversal will again excite investors and speculators.