Why Royal Caribbean, Carnival and Norwegian Cruise Line inventories continue to rock


What happened

For the second day in a row, cruise ship stocks are at full speed and heading offshore.

Yesterday a better than expected income report on Royal Caribbean (NYSE: RCL) has sparked a rally in the cruise industry. The momentum continues this afternoon, with shares of Royal Caribbean gaining an additional 4.3% until 12:15 a.m. EDT, Carnival Corporation (NYSE: CCL) a little late with a gain of 3.6%, and Norwegian Cruise Line Holdings (NASDAQ: NCLH) a solid 6%.

Image source: Getty Images.

So what

And yet, as individual investors seem increasingly bullish on cruise stocks, professionals are turning conservative. In today’s news, two of the biggest names on Wall Street have lowered their pricing targets on Royal Caribbean.

According to TheFly.com, investment bank Stifel Nicolaus maintains its buy rating on shares of Royal Caribbean, according to TheFly.com. Stifel further notes (according to StreetInsider.com) that he hopes to see a COVID-19 vaccine begin distribution in the first quarter of 2021, which could accelerate a recovery. Nonetheless, the analyst reduced his price target from $ 85 per share to just $ 72 per share.

Investment megabanker JP Morgan It’s also lowering its share price target, from $ 72 to just $ 67. Contrary to Stifel’s optimism, JP warns that the recovery in the cruise industry may be slower than expected, making Royal Caribbean shares in particular worth less than the analyst previously thought.

Now what

Granted, JPMorgan also believes Royal Caribbean stock will outperform the market and continues to recommend stocks for that reason. But there seems to be reason to be cautious here, as even implied by the price target cuts from these bullish analysts.

Already in the past two weeks, two of the three major listed cruise lines have warned that they are burning cash at higher-than-expected rates. Norwegian Cruise Line Holdings is now burning $ 160 million per month and Royal Caribbean between $ 250 million and $ 290 million. Considering the trend, I wouldn’t be surprised if Carnival reports an acceleration in cash consumption in its next update as well.

Even assuming “plentiful” liquidity, burning more cash in the middle of a recession is not a good thing. I don’t want to stress this too much, but this is one reason why these stocks are trading low and not high.


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