The world’s three largest cruise companies - Norwegian Cruise Line, Carnival and Royal Caribbean Cruises - have been forced to anchor their fleets for months. Will easing lockdown restrictions lift three ailing share prices?
Barnacles have been gathering on the hulls of thousands of cruise ships since March, as the Centers for Disease Control and Prevention’s no sail order keeps prospective passengers at bay. Shares in Carnival [CCL], Norwegian Cruise Line Holdings [NCLH], and Royal Caribbean Cruises [RCL] have all sank as a result. For the year to 18 May, their respective share prices were down 70.7%, 77.9% and 66.9%.
Together, these three company’s account for 75% of the global cruising market, Christine BN Chin writes in The Washington Post, but without business, they are being forced to tap into backup financing. Norwegian Cruise Line has been calling for its share price investors and other traders to help raise capital amid these pressures, but Carnival has taken a different approach by offering significantly discounted trips for when its operations resume.
Norwegian Cruise Line's YTD share price fall
As it stands, the outlook for these major cruise lines is one of survival for 2020 and beyond that investors in the firms’ share prices will simply be hopeful that a sense of normality is restored, and soon.
Stuck in the doldrums
All three cruise lines have reported choppy results for the first quarter as well as grim outlooks — both Norwegian Cruise Line and Royal Caribbean Cruises withdrew their guidance — as the companies leak cash.
In an effort to plug leaking expenses, Norwegian Cruise Line raised $2.4bn in capital at the start of May. CEO Frank Del Rio expects these liquidity-enhancing initiatives to help “weather an unlikely scenario of over 18 months of suspended voyages”.
Amount raised in capital by Norwegian Cruise Line since start of May
As the smallest out of the big three, the company reported a net loss of $211.3m, or $0.99 per share compared to earnings of $0.83 a year earlier. Revenue was down 11% to $1.2bn for the quarter.
For Royal Caribbean Cruises, its preliminary first-quarter update revealed a suspended outlook, sagging booking numbers and cash reserving measures, including a 26% reduced workforce of more than 5,000 shoreside employees in the US.
Royal Caribbean Cruises expects to burn through an estimated $250m to $275m per month as operations are suspended.
Meanwhile, Carnival — the operator of Diamond Princess, quarantined in February in Japan — posted a net loss of $781m for the first quarter, down from a net income of $366m during the same quarter a year ago.
Carnival's Q1 net loss
The major cruise line noted that booking volumes were “meaningfully behind” 2019 and expects the pandemic to continue to have an effect on future bookings for 2021. It stated that as of 15 March this year, cumulative advance bookings for the first half of 2021 were slightly lower than the previous year,
Carnival, like its peers, has also taken efforts to slim its operating costs, which helped it to report net income of $150m, or $0.22 per share for the first quarter.
The dramatic share price falls have attracted short-sellers for these stocks. According to S3 Partners analyst Ihor Dusaniwsky, Carnival had been the most heavily shorted share price at the start of May, Bezinga reports.
As of 20 May, 29.29% of Carnival’s float is shorted, while short interest for Norwegian Cruise Line and Royal Caribbean Cruises sit at 15.28% and 14.94% and respectively, according to Morningstar data.
Norwegian Cruise Line and Royal Caribbean Cruises, both have an overweight rating among 17 analysts polled by MarketWatch. Their respective share price targets would represent 36.8% and 55% increases from current levels.
Carnival, meanwhile, is rated a hold among 19 analysts and has a share price target of $20.63 — a 46% increase from the $14.15 it was trading at on 20 May.
|Carnival||Norwegian Cruise Line||Royal Carribean|
|PE ratio (TTM)||5.38||3.17||4.86|
|Quarterly Revenue Growth (YoY)||2.50%||7.20%||7.90%|
Carnival, Norwegian Cruise Line & Royal Carribean Cruise share price vitals, Yahoo Finance, 21 May 2020
Tim Conder, analysts at Wells Fargo, is part of those taking a bullish position on Royal Caribbean Cruises’ share price, Conder believes the company is “best in class” as it requires the least amount of capital to survive an extended loss of business, according to TipRanks.
On the other hand, James Hardiman, analysts for Wedbush, takes a bullish stance on Norwegian Cruise Line’s share price. “The liquidity recently added by NCLH would seem to put the company in a sound position under the majority of plausible scenarios, no small feat given the gauntlet that they needed to run through in recent months to ensure the company’s survival,” Hardiman wrote.
Determining which of these cruise lines is going to come out of the pandemic unscathed will come down to each business’s liquidity to survive the weakened demand in 2020.