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Why Carnival, Royal Caribbean, and Norwegian Cruise Line Stocks Rebounded on Friday

By Joe Tenebruso – May 8, 2020 at 7:06PM

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An update from one of the major cruise-line operators boosted investor optimism.

What happened 

Cruise-ship stocks climbed on May 8 after Royal Caribbean (RCL -5.49%) provided a business update. Shares of Carnival (CCL -7.16%), Norwegian Cruise Line Holdings (NCLH -5.84%), and Royal Caribbean rose 5%, 3.6%, and 5%, respectively.

So what 

With their ships stuck at port due to sailing restrictions imposed by health agencies during the COVID-19 crisis, the major cruise-ship companies are bleeding cash. In turn, Royal Caribbean, Norwegian, and Carnival have all taken on more debt in order to raise the cash they need to survive until their ships can begin sailing again.

On Friday, Royal Caribbean said it had approximately $2.3 billion in cash reserves as of April 30, which it boosted by drawing $150 million from its senior secured credit facility on May 4. "Since late January, we have undertaken several proactive measures to mitigate the financial and operational impacts of COVID-19," Royal Caribbean CFO Jason Liberty said in a press release. "Our focus is on bolstering liquidity through significant cost cutting, capital spend reductions, and other cash conservation measures."

Liberty went on to say that Royal Caribbean is considering other ways to obtain cash. "We continue to evaluate all options available to us to further enhance liquidity," he said.

Rough seas off the side of a cruise ship

Cruise-ship companies clawed back some losses on Friday, even as the industry continues to face rough seas ahead. Image source: Getty Images.

Now what 

Cost cuts can only go so far. And taking on more debt to raise cash is not a panacea. Eventually, the bill will come due.

And while their ships are docked at ports, the cruise-ship giants continue to burn through cash. Royal Caribbean alone is losing as much as $275 million per month

Thus, Carnival, Royal Caribbean, and Norwegian Cruise Line holdings all remain high-risk stocks.

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

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Stocks Mentioned

Royal Caribbean Cruises Ltd. Stock Quote
Royal Caribbean Cruises Ltd.
RCL
$44.42 (-5.49%) $-2.58
Carnival Corporation Stock Quote
Carnival Corporation
CCL
$8.95 (-7.16%) $0.69
Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
NCLH
$13.55 (-5.84%) $0.84

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

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