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Vaccine Distribution Starts; Are Carnival, Royal Caribbean, and Norwegian Cruise Line Stocks Now a Buy?

The cruise industry has hit a low point due to a near complete evaporation of its market caused by the travel and vacation moratorium necessitated by the COVID-19 global pandemic. Royal Caribbean (RCL), Norwegian Cruise Line (NCLH) and Carnival (CCL) have experienced significant declines in their revenue and earnings, and they do not appear well positioned to witness a recovery anytime soon. Let's take a closer look.

The COVID-19 pandemic has had a massive negative impact on the tourism industry due to the travel restrictions imposed by almost all countries. Earlier this year, the World Tourism Organization estimated a 58%-78% decrease in international tourist arrivals this year, representing a painful loss of tourism revenue.

The cruise industry came to a virtual standstill earlier this year after many vessels became hotbeds of the COVID-19 infection. Some operators even faced lawsuits for on-ship outbreaks. Several companies that were compelled to suspend their global cruise operations earlier this year have yet to resume their operations. This has had an adverse impact on the financials of even the largest companies in this industry. Moreover, since the majority of the cruise companies aren’t domiciled in the United States, the industry did not benefit from any of the  relief packages passed by the U.S. .Congress this year.

The COVID_19 vaccine jointly produced by Pfizer, Inc. (PFE) and BioNTech S.E. (BNTX) has secured FDA approval for emergency use, and the distribution has begun. But it is no silver bullet; producing enough vaccines and deploying them across the globe, keeping in mind the stringent temperature requirements, is a challenging task. So, it is likely that it will be some time before cruise operators' businesses return to normal.

Consequently, we think Royal Caribbean Group (RCL), Norwegian Cruise Line Holdings Ltd. (NCLH) and Carnival Corporation & Plc. (CCL) may not see much of a recovery in the near to mid-term.

Royal Caribbean Group (RCL)

RCL operates a cruise company that offers a selection of itineraries that covers the seven continents under three global cruise brands: Royal Caribbean International, Celebrity Cruises, and Azamara Club Cruises.

In October, a  class action lawsuit was filed against RCL by various law firms.  The plaintiffs allege that RCL misled investors to believe that any issue related to COVID-19 was relatively inconsequential. RCL falsely assured investors that bookings outside China were robust with no signs of a slowdown and failed to disclose that it was experiencing substantial declines in bookings worldwide, the lawsuit alleges. Naturally, the lawsuit has caused more consternation and disruption in the normal functioning of the business, which was already negatively affected due to the spread of the pandemic.

RCL reported negative revenues of $33.69 million in the fiscal third quarter ended September 2020, owing to onboard expenses when business activities were suspended. Its Loss per Share was $5.62 during the same period, compared to EPS of $4.27 in the prior-year quarter.

The consensus EPS estimate of negative $5.20 for the current quarter (ending December 31, 2020), represents a 466.2% decrease year-over-year. The consensus revenue estimate of $43.49 million for the current quarter ending December 31, 2020 represents a 98.3% decrease year-over-year. RCL declined by 41.6% over the past year.

RCL’s POWR Ratings are consistent with this bleak outlook. It has an overall rating of “Sell” with a grade of “D” for Trade Grade, Peer Grade, and Industry Rank, and an “F” for Buy & Hold Grade. Within the Travel - Cruises industry, it is ranked #2 of 5 stocks.

Norwegian Cruise Line Holdings Ltd. (NCLH)

NCLH is a global cruise company which operates the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises brands. With a combined fleet of 28 ships, these brands offer cruises to more than 490 destinations worldwide.

Earlier in November, NCLH extended the suspension of its global cruise voyages in Norwegian Cruise Line, thereby expanding the suspension of its operations for more than nine months. This is expected to have an adverse impact on the overall performance of the company.

NCLH’s revenues have decreased 99.7% year-over-year to $6.52 million in the third quarter ended September 30, 2020. Its Loss per share was $2.35 during the same period, compared to EPS of $2.23 in the prior-year quarter. Interest expenses increased 132% year-over-year to $139.66 million in the third quarter, adding to the company’s losses. This was due to an additional debt burden taken on by the company to keep it afloat during the pandemic.

The consensus EPS estimate of negative $2.25 for the current quarter ending December 31, 2020 indicates a 408.2% decrease year-over-year. NCLH has missed the Street EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $2.34 million for the current quarter ending December 31, 2020 represents a 99.8% decrease year-over-year. NCLH has lost 53.89% over the past year.

NCLH is rated a “Sell” in our POWR Ratings system. It has a “C” for Trade Grade, “F” for Buy & Hold Grade, and “D” for Industry Rank. Out of 5 stocks in the same industry, it is ranked #4.

Carnival Corporation & Plc. (CCL)

CCL is a leisure travel company. Some prominent brands under which CCL operates are Carnival Cruise Line, Princess Cruises, Holland America Line, Seabourn, among others. Apart from the cruise business, it also owns and operates hotels, lodges, glass-domed railcars, and motor coaches.

The law firms of Kessler Topaz Meltzer & Check, LLP and Bernstein Litowitz Berger & Grossmann LLP are on the verge of filing a class action lawsuit against CCL. The plaintiffs have alleged that CCL made misleading statements and failed to disclose facts about its inability to handle the spread of virus on its ships, which compromised the health and safety of its passengers and crew members. The disposition of this suit could lead to further operational challenges for CCL in the near future we think.

CCL’s revenues have decreased 99.5% year-over-year to $31 million in the fiscal third quarter ended August 31, 2020. Its Loss per share was $2.19 during this period, compared to EPS of $2.63 generated in the prior-year quarter. Interest Expenses increased 496.2% year-over-year to $310 million in the third quarter owing to its increased debt burden.

The consensus EPS estimate of negative $1.88 for the quarter ended November 30, 2020 represents a 403.2% decrease year-over-year. The consensus revenue estimate of $142.09 million for the about-to-be reported quarter indicates a 97% decrease year-over-year. The stock lost 53.7% over the past year.

CCL is rated a “Sell” in our POWR Ratings system. It has a “C” for Trade Grade and Peer Grade, an “F” for Buy & Hold Grade, and a “D” for Industry Rank. It is currently ranked #3 out of 5 stocks in the same industry.

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RCL shares rose $0.04 (+0.05%) in after-hours trading Thursday. Year-to-date, RCL has declined -44.07%, versus a 17.31% rise in the benchmark S&P 500 index during the same period.



About the Author: Rishab Dugar

Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.

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