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Why Carnival, Royal Caribbean, and Norwegian Cruise Line Stocks Fell Today

By Joe Tenebruso – Jun 26, 2020 at 6:00PM

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A worrisome wave of coronavirus infections threatens to sink the cruise industry.

What happened

Cruise ship stocks fell on Friday, as soaring COVID-19 case counts forced states to pause and even reverse their reopening plans.

By the close of trading, shares of Norwegian Cruise Line Holdings (NCLH 15.96%) and Royal Caribbean (RCL 13.94%) were down 5% and 4.5%, respectively, while Carnival's two stocks Carnival Plc (CUK 14.40%) and Carnival Corp (CCL 13.36%) were down 6.4% and 1.4%.

So what 

The U.S. continues to set frightening new records for coronavirus cases. That's forcing hard-hit states such as Florida and Arizona to slow their reopening plans, while Texas is going so far as to close bars and other alcohol-serving establishments. 

A man and woman are looking at a cruise ship.

High COVID-19 case counts could keep passengers off cruise ships for longer than investors expect. Image source: Getty Images.

Meanwhile, analysts are warning that a second wave of coronavirus infections could hit in the fall, right around the time the major cruise ship operators are hoping to resume sailing. If they're correct, health authorities may be forced to once again extend their no sail orders. 

Now what

Carnival, Royal Caribbean, and Norwegian Cruise Line Holdings are already in a weakened position after burning through hundreds of millions of dollars while their ships have been stuck at port for several months. Yes, they've raised substantial amounts of capital from debt offerings to help them stay afloat, but interest payments will weigh on their profitability until that debt can be repaid.

Moreover, cruise lines will be forced to operate at less than full capacity in order to abide by social distancing directives once they are authorized to set sail. They will also need to spend more on cleaning and other safety measures to protect their passengers.

Perhaps most worrisome is that there can be no assurances that enough people will want to board cruise ships -- which have been prone to COVID-19 outbreaks -- once they are allowed to do so.

For all of these reasons, Carnival, Royal Caribbean, and Norwegian Cruise Line Holdings should be viewed as high-risk investments -- and their stocks' losses on Friday could be only part of a far larger downward move in the weeks and months ahead.

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.
$42.83 (13.94%) $5.24
Carnival Corporation Stock Quote
Carnival Corporation
$7.76 (13.36%) $0.92
Carnival Corporation Stock Quote
Carnival Corporation
$6.86 (14.40%) $0.86
Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
$13.22 (15.96%) $1.82

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

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