So far, today has been tough for cruise line investors. Barclays downgraded Norwegian Cruise Line (NYSE:NCLH) and Royal Caribbean Cruises (NYSE:RCL) stocks. Reuters reported that rating agency Standard & Poor downgraded bonds of cruise operator Carnival (NYSE:CCL) to “junk” status. The COVID-19 pandemic has hurt the travel industry. Rising COVID-19 cases and macro-economic challenges might make the travel industry’s recovery tougher.
As of 12:31 PM ET today, Royal Caribbean stock has fallen 11.7%, while the Norwegian Cruise Line stock has fallen 13.1%. As of June 23, Royal Caribbean stock had fallen 59.3% year-to-date, while Norwegian Cruise Line stock was already down 69.1%. Carnival stock has declined 64.6% YTD as of Tuesday.
Norwegian Cruise Line and Royal Caribbean downgraded
Today, Barclays downgraded Norwegian Cruise stock to “equal weight” from “overweight.” However, the bank kept the stock’s target price unchanged at $21. Barclays also cut Royal Caribbean’s rating to “equal weight” from “overweight” and reduced the target price to $50 from $55.
Barclays thinks that cruise stocks will remain range-bound or will decline in the near to midterm. Increased leverage, uncertainty regarding returning to full operations, and the possibility for another delay or disruptions due to the pandemic are certain headwinds that these companies face. Right now, Barclays thinks that the lodging and gaming sector are placed better compared to cruise companies.
On April 9, the CDC announced an extension of a No Sail Order for all cruise ships for another 100 days until July 24. In response to the extension order, the CLIA (Cruise Lines International Association) expressed its concern about the impact of such an order on the industry. In a statement, the CLIA stated that suspending the operations could result in a total economic impact loss of about $92 million per day. The association also cautioned that the pace of losses could increase. The suspension could lead to a total economic impact loss of $51 billion for the US if the order remains effective for a year.
On June 16, Norwegian Cruise Line extended the suspension of all voyages for its three cruise brands through September 30. The company also canceled select voyages through October including Canadian and New England itineraries. On June 23, Royal Caribbean extended the suspension of most voyages through September 15.
Despite the significant impact of the COVID-19 pandemic, analysts see an upside in these stocks. There’s hope about an economic recovery. Currently, nine analysts recommend a “buy,” nine recommend a “hold,” and one recommends a “sell” for Norwegian Cruise Line stock. With an average 12-month target price of $17.32, analysts see an upside of 10% in the stock. They expect the company’s revenue to decline by 71.6% to $1.84 billion in the current fiscal year. Wall Street estimates an adjusted loss per share of $6.70 in 2020 compared to an adjusted EPS of $5.09 in 2019.
For Royal Caribbean stock, ten analysts recommend a “buy,” eight recommend a “hold,” and two recommend a “sell.” With an average target price of $64.73, analysts see an upside of 34% in the stock. Analysts expect a 70.2% decline in the company’s 2020 revenue to $3.27 billion. They predict an adjusted loss per share of $13.10 in 2020 compared to an adjusted EPS of $9.54 in 2019.
Recently, uncertainty associated with the COVID-19 pandemic and economic recovery caused a lot of volatility in cruise stocks.