Please ensure Javascript is enabled for purposes of website accessibility

Why Norwegian Cruise Line Holdings Stock Just Gave Back 4%

By Rich Smith - Aug 7, 2020 at 11:57AM

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

The cruise operator has plenty of cash. It's also burning it faster than you had hoped.

What happened

Norwegian Cruise Line Holdings (NCLH 2.91%) investors had a pretty good day yesterday. After the cruise operator reported its financial results for Q2 2020, shares surged to close the day nearly 4% higher. But today Norwegian stock is giving back all of those gains and returning to a price actually lower than what it was worth before earnings.

Why?

So what

As I explained in the commentary on yesterday's earnings report, investors aren't really interested in reading about Norwegian Cruise Line's earnings these days -- because they know there aren't any and there won't be any until the Centers for Disease Control and Prevention (CDC) lifts its no-sail order banning cruise ships from sailing out of U.S. ports.

Instead, what investors want to know is simply this: Does Norwegian Cruise Line Holdings have the cash it needs to survive until cruising can resume?

Collage showing a cruise ship, a person wearing a face mask, and coronavirus particles

Image source: Getty Images.

Now what

In that regard, Norwegian's report yesterday was somewhat reassuring, but also somewhat disconcerting.

On the one hand, the cruise line confirmed that as of the end of June, it had $2.3 billion in cash on hand. Add to that the further $1.5 billion in debt it raised in July, and subtract $0.2 billion or so for accumulated cash burn, and Norwegian may have as much as $3.6 billion in cash available to it currently, to fund it through the end of the current recession in cruise stocks.  

Problem is, Norwegian also noted that it is continuing to burn cash at the rate of $160 million a month while its ships are confined to port. That's significant because, only a few months ago, Norwegian said it was burning cash at the rate of $110 million to $150 million a month. The company explained that its "new monthly cash burn estimate is at the high end of the previously disclosed range due to additional interest expense related to the July capital raise, maintaining more ships in warm layup due to various port requirements and weather restrictions, increased costs associated with fluctuating travel restrictions for crew and additional marketing investments." But whatever the reasons, the fact remains: Norwegian is burning cash faster than planned.

That's not good news for investors, and I suspect it's why they're selling the stock today.

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.

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

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.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

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

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/14/2022.

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.