Leading the auction higher was MGM Resorts International (NYSE: MGM), up 13.8% on news that a large investor took a $ 1 billion stake in the casino and resort operator. Airlines shares rose as well, with United Airlines (NASDAQ: UAL) shares rose the highest, rising 9.4% after TSA’s last airport screening counts over the weekend.
Inventories of cruise lines also increased today, with Royal Caribbean (NYSE: RCL) Shares at the top of the fleet: It rose 10% after announcing profits that seemed to give investors hope for the whole industry.
Shares of struggling oil giant Western Oil (NYSE: OXY) also climbed today, up 6.7%, ahead of its second quarter earnings report after market close.
Media giant places billion dollar bet on casino industry
Media giant IAC / Interactive (NASDAQ: IAC) just bought a 12% stake in MGM Resorts, raising MGM shares on the news. The CEO and President of IAC wrote a joint letter disclosing the investment, in which they cited MGM’s brand, physical presence and online operations.
Investors apparently viewed EPC investing as a benefit to their peers Wynn Resorts (NASDAQ: WYNN) and Las Vegas Sands (NYSE: LVS), sending their shares up 10% and 7.5% respectively.
Revenue and positive travel news push up shares of cruise lines and airlines
The Transportation Security Administration gave investors a reason to flock into airline shares today, reporting that more than 800,000 travelers passed through checkpoints on Sunday. That’s the highest number of travelers in a single day since March 17, and a massive jump from the low of 87,534 on April 14. The total number of travelers from Friday to Sunday was just under 2.28 million.
Investors reacted quickly to the news, sending each airline’s shares on the S&P 500 by at least 5%. United led the way, up 9.4%. Here’s how his peers ended up:
Boeing (NYSE: BA) Shares were up 5.4% on the day, likely riding the tailwind of higher traffic for commercial air travel, and hopes demand for the still-standing 737 MAX will recover faster than expected if the air travel continues to rebound.
Yet even with the gains reported by the TSA, investors should act lightly. Air travel over the weekend was still down 70% from the same weekend last year, and the industry remains in dire financial straits.
Cruise line stocks surged today after Royal Caribbean’s second quarter earnings report and call. The cruise giant reported a much larger-than-expected loss, $ 6.13 per share, and continues to burn more than $ 250 million in cash each month. But despite mounting losses, investors appear to be paying attention to the surprising $ 176 million revenue the company made in the quarter.
It seems – just like with TSA’s traveler data – that investors are clinging to anything that offers hope of a recovery. In this case, revenues were higher than expected, indicating that there could be a strong pent-up demand for cruises once Royal Caribbean returns to sea.
And it wasn’t just Royal Caribbean, either: actions of Carnival Corp. (NYSE: CCL) and Norwegian Cruise Line Holdings (NASDAQ: NCLH) also gained more than 8% after the publication of the results of Royal Caribbean.
But it won’t just be smooth sailing from here. The Centers for Disease Control (CDC) still has cruise ships on a “no sail” order, and it is possible that this will be extended as the coronavirus pandemic worsens. The big operators have all managed to get large cash reserves on their books, but at their current burn rates, they will all have massive debt to face, even after the pandemic has subsided. Like a melting ice cube, their margin of safety decreases each month and the risk of permanent losses for investors increases.
Oxy Gains: Buy the Rumor, Sell the News?
Shares of Occidental Petroleum gained nearly 7% in today’s session, with investors anticipating second quarter earnings after the bell. However, once the post dropped, the after-hours sell-off began, with shares down about 5%.
Why this big drop? In short, a very ugly quarter. Demand and prices for oil spiked in the second quarter, and Oxy lost $ 8.4 billion as a result. The bulk of those losses were $ 6.6 billion in write-downs, greatly reducing the value of oil and gas assets.
The company said it has lowered its cost structure by $ 1.5 billion, but investors continue to focus on the biggest risk: debt. Oxy still has a substantial amount of debt maturing in the next two years, but limited access to capital. In June, the company sold bonds worth $ 2 billion, all paying interest rates of 8% or more.
Can the company reduce and refinance its exit from a self-inflicted mess following the acquisition of Anadarko? As it stands, the cost seems extremely high and there is still a very real risk that bankruptcy is the only way to go.
In a relatively quiet week, notable names are expected to report quarterly results, including the food retail giant Sysco (NYSE: CAUSE), report August 11; networking and communication equipment manufacturer Cisco Systems (NASDAQ: CSCO), report August 12; and luxury fashion retailer Tapestry (NYSE: TPR), report August 13. Check back here for a closer look when the earnings will be released.