Shares of Royal Caribbean Cruises (NYSE:RCL), Carnival Corporation (NYSE:CCL), and Norwegian Cruise Line (NASDAQ:NCLH), were all flirting with 30% gains during early Tuesday trading before giving some gains back, as officials announced positive news for the COVID-19 coronavirus outbreak.
In case you missed it, despite a rising death toll in New York, Governor Andrew Cuomo said that the hospitalization rate and new-infection rate were both in decline. Morgan Stanley's chief U.S. equity strategist, Mike Wilson, went as far to say he believes the worst of the market turmoil is behind us and it makes "the risk/reward more attractive today than it's been in years."
As consumers practice social distancing and many businesses temporarily close their doors or pause some of their services, many stocks and sectors have been hard hit -- but cruise lines have been decimated. One reason for the cruise line sell off was that the group was left out of the $2 trillion coronavirus stimulus package as it was limited to aiding U.S. incorporated companies with a majority of workers based in the country. That stipulation effectively excluded major cruise line operators, despite President Donald Trump admitting he would like to provide some assistance, as cruise lines support some local U.S. economies.
Without aid, however, the companies are feeling pressure on their balance sheets as they continue to burn cash and have zero revenue. Comments from National Economic Council director Larry Kudlow suggested that stay-at-home orders could be lifted in four to eight weeks, and any news that suggests we're beginning to flatten the COVID-19 outbreak curve or optimism that the economy will rapidly bounce back will send these stocks soaring.
Analysts at UBS answered the question many investors have asked: "How long can cruise lines last in this environment?" Per analyst, Robin Farley, "CCL's capital raise last week gives it the longest runway of liquidity to stay afloat in a zero-revenue scenario, at about 12-13 months with potential for another 2 months based on prolonged layups, and more beyond that." Farley also believes Royal Caribbean has roughly 10 months of liquidity and Norwegian Cruise Line has roughly seven to eight months in a zero-revenue scenario.
This is a great example of why investors need to check balance sheets, liquidity, and upcoming debt maturities to better understand which companies can weather this storm -- especially if they're considering investing in a risky area such as cruise lines. While broader markets will almost certainly bounce back over time, not all companies will survive this. Companies with strong balance sheets and an intact long-term growth story could be of interest to investors.