Please ensure Javascript is enabled for purposes of website accessibility

Why Norwegian Cruise Line, Carnival, and Royal Caribbean Stocks All Popped on Tuesday

By Travis Hoium – Apr 28, 2020 at 2:02PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A business update from Norwegian Cruise Line gave a small peek into the survival and recovery plans of the industry.

What happened

Shares of cruise line stocks jumped on Tuesday as investors started to get a feel for what cash burn during their shutdown looks like and what the eventual recovery might be like. Norwegian Cruise Line (NCLH 0.35%) led the charge after giving an operational update, and shares climbed 11.5% at midday. At 12:15 p.m. EDT, shares were still up 10.7%.

It was no surprise that Carnival (CCL -2.56%) and Royal Caribbean (RCL -0.82%) moved higher as well, with the stocks rising as much as 11.6% and 8.9%, respectively. As of this writing, Carnival is up 7.9% and Royal Caribbean is up 4.9%.

Cruise ship near a beach.

Image source: Getty Images.

So what?

The move was really driven by Norwegian Cruise Line releasing a business update that highlighted what it's done to reduce costs. Management said that operating expenses during suspended operations would be about $70 million to $110 million per month. That's a useful figure for investors, because we can then figure out how long the company can go without revenue.

Norwegian Cruise Line has also identified $345 million of capital expenditure reductions for 2020, a total of $515 million through March 31, 2021.

When operating expenses, capital expenses, and debt costs are added up, management estimates there will be about $110 million to $150 million of cash burn while operations are down. Given that cash on the balance sheet was $1.4 billion as of March 31, 2020, the company has as much as a year's worth of liquidity to make it through the current crisis.

Now what?

There's no real clarity on when cruise lines will get back to full operations, but I wouldn't expect any revenue until at least July 24, when a no-sail order from the Centers for Disease Control and Prevention ends. After that, it's not clear how much demand there will be for cruises, but Norwegian Cruise Line has said it's taking orders and deposits for later this year and into future years.

What's encouraging is that companies have been able to cut costs rapidly and shore up their balance sheets. Over the next few weeks, we'll get updates on balance sheets and cash burn at other cruise companies, and that should spell out what their survival plans look like.

What's more uncertain is what a recovery looks like for cruise lines and consumer spending more broadly. Even if cruise ships start sailing in July, they're unlikely to be full or commanding the same prices they were earlier this year. And a single infectious outbreak on a ship, which we've already seen happen, could send the industry back into a tailspin. Investors are betting on a quick recovery today, but I think it's still too early to get bullish on the industry.

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Royal Caribbean Cruises Ltd. Stock Quote
Royal Caribbean Cruises Ltd.
RCL
$37.59 (-0.82%) $0.31
Carnival Corporation Stock Quote
Carnival Corporation
CCL
$6.85 (-2.56%) $0.18
Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
NCLH
$11.40 (0.35%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.