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Why Carnival, Royal Caribbean, and Norwegian Cruise Line Stocks Floated Higher on Tuesday

By Rich Smith – Jun 23, 2020 at 5:11PM

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Germany's Deutsche Bank just gave America's cruise lines a lift (sort of).

What happened

Shares of America's cruise lines surged higher in Tuesday trading, with Carnival (CCL -7.16%) (CUK -7.53%) rising 4.5%, Royal Caribbean (RCL -5.49%) racing ahead 4.8%, and Norwegian Cruise Line Holdings (NCLH -5.84%) up by 5.5% on the day. You can probably thank Deutsche Bank for that.

Cruise ship at sea.

Image source: Getty Images.

So what

The only news from these stocks over the past couple of days has been of the "bad, but expected" variety. On Monday, Carnival announced that it is extending its pause on sailing through Sept. 30, and will only resume operations by Oct. 1 at the earliest. Today, Royal Caribbean made a similar statement, suspending "most sailings ... excluding sailings from China" through Sept. 15, and suspending trips to Bermuda through the end of October.  

All of this was in line with the Cruise Lines International Association (CLIA) announcement on Friday that all of its member cruise lines (including Carnival, Royal Caribbean, and Norwegian Cruise Line) will voluntarily extend the suspension of cruise operations from U.S. ports until Sept. 15.

What was not expected was that despite CLIA's statement, German investment bank Deutsche Bank would decide today to raise its price targets on the three cruise stocks.

Now what

As the analyst explained in its note, reported today, "the industry's key players are undertaking actions that will ultimately allow them to emerge from the COVID-19 downturn in the best possible position to restore profitability." And in light of the moves these companies have made to reduce their costs, husband the cash they have, and raise even more cash to tide them over through the industrywide recession, Deutsche believes that each of the cruise lines are now worth more than it previously thought: $13 a share for Carnival, $15 for Norwegian Cruise, and $40 for Royal Caribbean.

And yet each of these new price targets remains significantly below where the respective stocks trade today. By close of trading Tuesday, both Carnival and Norwegian shares fetched more than $18 each, instead of $13 or $15. Royal Caribbean, which Deutsche Bank now admits might be worth $40 a share, currently costs $54 (and change).

Talk about a backhanded compliment! While investors were encouraged by the bigger numbers the bank bandied about, they might have been better advised to focus on the observations that Deutsche made: Investor optimism about cruise stocks is "curious," and cruise stock prices have come "too far, too fast."

Once investors realize what Deutsche Bank actually said, I wouldn't be surprised to see these stock prices go right back down again.

Rich Smith 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.
$44.42 (-5.49%) $-2.58
Carnival Corporation Stock Quote
Carnival Corporation
$8.95 (-7.16%) $0.69
Carnival Corporation Stock Quote
Carnival Corporation
$7.86 (-7.53%) $0.64
Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
$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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