Why the Worst Appears to Be Over for Major Cruise Line Stocks

Casinos & Hotels

Published: September 25, 2020 12:36 pm

When investors hear of big analyst upgrades in a sectorwide call, they frequently assume there is great news driving the industry. Some upgrades are based merely on the bad news looking to be less than what it has been. There has been almost no good news in the cruise industry in 2020. Yet, despite a shutdown over the pandemic, one firm has decided to upgrade the major cruise lines, even without them generating a penny of revenues yet.

According to Barclays, the worst is behind for the cruise lines. The boats are currently stuck with nowhere to go and are not yet allowed to take passengers on the traditional mega-cruises with 2,000 or more people on board.

The 24/7 Wall St. roundup of daily analyst calls included an upgrade for the cruise lines from Barclays. The firm raised its cruise lines rating to Overweight from Equal Weight.

The group has raised billions of dollars worth of capital to act as a buffer while they were not allowed to operate. The cruise lines have all pushed back from their original relaunch dates due to rising COVID-19 cases after the economies opened back up.

One thing that will help the cruise industry is that testing has become more widespread. Another boost is that cruise bookings are showing that there is pent up demand, particularly for the prices that cruises have offered as incentives to get people back on the big boats.

The cruise lines also agreed to suspend sailings through at least October 31, and that was a month beyond the “No Sail” order from the Centers for Disease Control and Prevention (CDC). That said, the lines have been submitting their protocol recommendations that they will undertake to get cruises back up and running in a manner that still allows for people to be on board with much more preventative measures than in the past for keeping passengers and crew healthy.

One interesting aspect of the upgrade is that Barclays noted that the worst is now behind for the cruise industry, and that is even if the CDC extends its no-sail date out further than expected. The report does acknowledge that a second wave of coronavirus spread and potential ship outbreaks do remain real risks for the industry.

Felicia Hendrix, the analyst behind the call, sees a gradual resumption of cruises rather than all boats coming back into service. That is expected to be about 15% over the first quarter of 2021 and getting up to 75% or 80% in service during the second half of 2021.

Carnival Corp. (NYSE: CCL) was raised from Equal Weight to Overweight with a $31 price target in the Barclays call. Its shares closed down 2.7% at $13.74 on Thursday but traded up 5.8% at $14.52 on Friday. Refinitiv’s consensus target price was $15.65.

Norwegian Cruise Line Holdings Ltd. (NYSE: NCLH) was upgraded from Equal Weight to Overweight with a $26 price target. After closing down 3.5% at $14.63 ahead of the call, it was up 7.9% at $15.29 on Friday. Its consensus target price was $16.96.

Royal Caribbean Group (NYSE: RCL) was raised from Equal Weight to Overweight with a $68 target price. Its shares closed down 2% to $59.97 on Thursday, but the stock was trading up 5.4% at $63.24 on Friday afternoon.

Remember with every major stock call that no single analyst report, no matter how convincing and how much conviction is in a call, should ever be used as a sole basis for deciding to buy or sell a stock.