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Why Shares of Carnival Are Falling Today

By Lou Whiteman - Jan 30, 2020 at 2:12PM

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A coronavirus scare on a cruise ship in Italy causes concerns.

What happened

Shares of Carnival (CCL -0.98%) fell more than 4% on Thursday after one of its cruise ships was locked down due to fears a passenger onboard was infected with the coronavirus. Updated reports out of Italy appear to imply it could be a false alarm, but the incident, if nothing else, highlights the risk faced by Carnival and other cruise lines as the outbreak grows.

So what

The Costa Smeralda, a ship operated by Carnival's Costa Crociere unit, was blocked from leaving the port of Civitavecchia on Thursday after a passenger from China showed potential symptoms of the coronavirus. The woman was placed in isolation aboard the ship, and the more than 6,000 passengers on board were ordered not to leave the ship while the situation was being assessed.

A cruise ship heading to sea with a coastal city behind it.

Image source: Carnival.

Preliminary tests indicate that the illness is not the result of the coronavirus, but authorities are taking no chances.

Shares of Carnival and other cruise ship lines including Royal Caribbean (RCL 0.97%), as well as airline stocks and other travel companies, have been under pressure since news of the outbreak first broke, with investors fearing that the virus at a minimum would eat into the companies' Asian operations and at worst would cause vacationers worldwide to avoid booking cruises.

Regardless of whether this passenger does have coronavirus, the images of passengers mulling around on upper decks unable to deboard seem likely to resonate with potential passengers and could make a slowdown in bookings more likely.

Now what

Carnival has suspended cruise operations from Chinese ports until at least Feb. 4, canceling nine cruises. The company has said the suspensions will cut earnings by at least $0.03 to $0.04 per share. With upwards of 5% of capacity scheduled to be deployed to China this year, a prolonged outbreak would likely have a material impact on results.

Of course, we still don't know how far the coronavirus will spread or how long the outbreak will last. The outbreak certainly won't last forever, and Carnival should have the wherewithal to weather these setbacks. But given the uncertainty, it is understandable investors aren't rushing in to buy as the shares fall.

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Stocks Mentioned

Carnival Corporation Stock Quote
Carnival Corporation
CCL
$8.56 (-0.98%) $0.09
Royal Caribbean Cruises Ltd. Stock Quote
Royal Caribbean Cruises Ltd.
RCL
$35.25 (0.97%) $0.34

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