What happened
Cruise companies’ stocks are sinking with the start of the trading week. Starting at noon EST on Monday, Norwegian Cruise Line Holdings (NYSE: NCLH) fell 4%, Carnival Corporation (NYSE: CCL) (NYSE: CUK) fell 5.9% and Royal Caribbean (NYSE: RCL) fell 6%.
But it is the carnival pulling the whole sector down.
Image source: Getty Images.
And
This morning, the world’s largest publicly traded cruise company announced a new series of “ship-specific cruise cancellations and movements”. Among the new ventures, three cruise ships – Carnival Magic, Carnival Paradise and Carnival Valor – will be stationed in dry dock until November 2021, and cruises on board these ships, which were scheduled to start as early as June, will now be canceled .
And that is the good news.
Carnival may be the catalyst for today’s sale, but it is not the only cruise line that is struggling. As Barron’s noted on Friday, cruises aboard the three main cruise lines are not expected to resume before the fourth quarter of 2021, or even early 2022.
What now
The announcement of Carnival this morning seems to support this downside forecast.
Throwing cold water on optimistic investors who cited reserve increases for 2021 cruises as a reason for optimism, analysts at Truist Securities, quoted by Barron’s, warn that “now we see July as the best case to restart “(emphasis added). This suggests that cruise lines, which have now uniformly canceled all cruises out of US ports by the end of April, could very well be forced to repeatedly postpone cruises, even with spring and summer approaching.
What does this mean for investors? Rough waters, to use a phrase. If Truist and Barron’s are right, then it appears that we are facing a scenario in which cruise stocks may be repeatedly increased in anticipation of the end of cruise suspensions and / or updates to booking numbers, just to have the rug pulled out. fewer investors as cruise suspensions extend further back into the calendar year.
To make investors worse, as cruise lines realize they are not going to resume cruises as soon as they expected, they may need to issue more shares to raise more money – diluting shareholders in the process.
At the time of the cruise does If Carnival, Norwegian and Royal Caribbean return to profitability, those profits could turn out to be much smaller than investors today expect.