We All Like a Good Bargain – Are Cruise Lines On The Sale Rack?
It’s been one of the craziest months the stock market has ever seen. Both the S&P 500 and the Dow saw some of the largest daily drops since Black Monday 1987.
The Fed has lowered the fed funds rate to nearly zero, lowered the reserves that banks have to keep on-hand and reintroduced quantitative easing by buying back $500 billion of U.S Treasuries and $200 billion of mortgage backed securities. These announcements are enough to halt the steep slide of the markets for about five minutes and then the panic continues.
On a more local level, governments are shutting down non-essential businesses to encourage residents to stay at home. This creates more panic. We see hospitality and recreation stocks getting slammed more than consumer staples. Consumers are rushing out to buy bleach and toilet paper…but travel has slowed to a crawl.
The $581 billion airline industry and the $45 billion cruise line industry have yet to see the full impact of the virus. Airlines have cut flights way back and some cruises are cancelled as far out as May. And both industries are handing out layoffs.
Cruise lines have been in the news…and not in a good way. As the virus continues to spread, more people in small spaces becomes the last place that you want to be. As of right now there are 90,000 passengers still at sea as the cruise lines look for places to dock amid the global pandemic.
It’s going to take some time to see how the remainder of the annual 30 million passengers will alter their plans for the year. But, investors are refusing to wait, and we’re seeing shares tank.
Let’s take a look at two of the biggest names in the industry and how they are faring the uncertainty…
Norwegian Cruise Line
Norwegian Cruise Line is a Miami-based company that also operates the Oceania and Regent Seven Seas cruise line brands. These three fleets combined total 28 ships and the company plans on introducing an additional nine ships over the next seven years.
With the mission to provide exceptional vacation experiences to everyone around the world, the company had a record year in 2019. Not only was it the first major cruise line, to eliminate all single-use plastic water bottles across all its fleets, but it delivered its sixth consecutive year of record revenue and earnings.
This was despite the impact seen from hurricane Dorian. Norwegian still saw earnings per share come in at $5.09 for the year.
Cruise lines have to deal with interruptions such as natural disasters all over the world nearly every year. The one difference being that this time every destination and route has been affected. The company announced that it would suspend all cruises between March 13 and April 11.
So what will that mean for the company’s bottom line?
The management has already projected the impacts of the virus will be about 75 cents per share for the entire year 2020. That means the revised guidance for the full year has been dropped to $4.65-4.85. Obviously, those numbers are just an estimate, but Norwegian does have a few extra things going for it.
Last year the company announced several strategic investments in Alaska. Norwegian is actively working with local government and businesses to develop a downtown waterfront parcel in Juneau. Plus, the construction of the new pier at Ward Cove comes with preferential berthing rights for 30 years.
These investments are sure to pay off once people start traveling again. Plus, in 2019 the company refinanced $564 million of debt at the lowest coupon in ten years.
The real question is what do investors think about Norwegian right now? Check out the chart below. The pink line shows the drop in share prices since the beginning of 2020. The green line shows the number of Robinhood users holding shares of the company.
Shareholders are grabbing shares, as the number of users with shares jumped to 73,262. That was an increase of 7,270% in just 30 days. Share prices are down 84% during the same time period.
“Buy low and sell high” seems to be the mentality of the market.
With a solid balance sheet, refinanced debt and more ships rolling out over the next seven years, we don’t think this company will be going anywhere any time soon – pandemic or not.
Carnival Corp (NYSE:CCL)
Known for its slogan “Choose Fun”, Carnival Cruise Lines might be one of the most recognizable names on the sea. But Carnival Corp also holds Princess, Holland America Line, Seabourn and many other cruise lines. Together these brands comprise the world’s largest cruise ship fleet of 102 ships.
Carnival also saw a record year in 2019. Total revenues came in nearly $2 billion higher than the previous year. This is despite a significant downtown in leisure travel seen in continental Europe, which is one of the main markets of its other brands. The company also fought to keep revenue yield up despite seeing an increase in cost of 6.9%.
Prior to news of the Coronavirus, the management expected to see a record 2020 for booked occupancy and full year earnings per share to be only slightly better than 2019. That means despite anticipating an increase in booking for the year, management expected earnings to be almost flat. Management has since revised and remarked that the virus could lower earnings as much as 65 cents per share.
Each individual cruise line made its own decision of how long to suspend operations. These vary from 30 to 60 days and could be modified as active cases continue to grow.
Take a look at the chart below. Just like above, the pink line shows share prices since the beginning of 2020 and the green line shows the number of Robinhood users holding share over the same period of time.
The number of users with shares jumped to 92,703. That was an increase of 957% in just 30 days. Shares dropped 77% in the same time period.
As the great market sell-off continues, there is no doubt that some think Carnival is one to grab while shares are cheap.
The company will no doubt continue with its schedule 2020 launches as soon as the virus has subsided. This includes BOLT – the first roller coaster at sea, with speeds up to 40 miles per hour. The company also plans to launch the first cruise ship in North America to be powered by LNG.
It will take until mid-2020 for anyone to have a better idea of when life and business will return to normal. But it’s clear that investors believe these companies will see a recovery and are taking advantage of these beaten down prices.