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Why Norwegian Cruise Line, Expedia, and Avis Budget Stocks All Dropped Today

By Rich Smith - Jul 31, 2020 at 4:21PM

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The travel industry may never again be as profitable as it once was.

What happened

Shares of cruise and travel industry stocks shrank in end-of-week trading Friday. Norwegian Cruise Line Holdings (NCLH 2.91%) is dropping another 3.8% in late day trading (3:20 p.m. EDT), adding to yesterday's 1.1% loss after announcing it will not resume cruising until November.

Car rental stock Avis Budget Group (CAR 1.17%) is likewise coasting downhill -- 3.4% -- marking its fifth-straight day of losses. Yesterday, Deutsche Bank kept the bad news coming on that one when it cut its price target on Avis Budget stock by $10, to $24 a share.  

And then there's Expedia Group (EXPE 3.07%).

Collage showing a cruise ship, a man in a face mask and a microbe

Image source: Getty Images.

So what

Expedia stock is down more than either of the two travel-industry stocks named above, falling 4.7% as we move toward the closing bell -- and that's the good news. The bad news is that at one point today, Expedia was down nearly 10%.

Why was Expedia down so much, and why might this be exacerbating the problems Norwegian and Avis are suffering today?

Well, yesterday after close of trading, Expedia reported its financial results for fiscal Q2 2020. Everyone knew that Expedia was going to lose money last quarter. A travel agent operating in a travel industry hobbled by the coronavirus couldn't well do otherwise. But the $4.09 per share loss that Expedia reported was much worse than the $3.34 loss that Wall Street had forecast, and Expedia's revenues -- just $566 million -- were much lower than the $675 million that analysts had forecast.  

Now what

Commenting on Expedia's quarter, analysts at RBC Capital noted that travel in general is "one of the hardest hit sectors of the economy," and Expedia in particular remains "challenged," cutting its price target on the shares by 12%.

That challenge may not end any time soon, either. Testifying before Congress today, White House coronavirus advisor Dr. Anthony Fauci warned that the SARS-CoV-2 coronavirus is so "highly transmissible" that it might prove impossible to stamp it out completely -- that even if a vaccine is discovered, the virus might never "disappear." These comments echo similar warnings from University of Minnesota epidemiologist Dr. Michael Osterholm, who was even more blunt: "We will be dealing with this virus forever."  

If these experts are correct, COVID-19 could turn into not just a temporary but a permanent drag on travel and tourism demand. The travel industry as we knew it might never return to normal, or be as profitable as it once was.

No wonder investors are selling.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Expedia, Inc. Stock Quote
Expedia, Inc.
EXPE
$113.51 (3.07%) $3.38
Avis Budget Group, Inc. Stock Quote
Avis Budget Group, Inc.
CAR
$189.07 (1.17%) $2.18
Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
NCLH
$14.16 (2.91%) $0.40

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

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