What happened

Shares of struggling cruise operators including Royal Caribbean Cruises (RCL 1.23%), Norwegian Cruise Line Holdings (NCLH 0.66%), and Carnival (CCL -0.42%) (CUK -0.55%) jumped higher today after an analyst weighed in on the sector.

Norwegian rose as much as 11%, Royal Caribbean 7%, and Carnival 8% before each settled down to slightly lower gains as of noon EDT.

So what

The industry continues to be severely impacted by COVID-19 restrictions, but Barclays' analyst Felicia Hendrix upgraded the sector today, saying she thinks the industry is nearing an "inflection point." 

cruise ship visiting port

Image source: Carnival.

The analyst upgraded her ratings on all three cruise operators from equal weight to overweight today, though noted that it may still be early to realize the outperformance. She points out that though current sailing restrictions from the Centers for Disease Control and Prevention (CDC) end on Sept. 30, 2020, there is a likelihood that the "no-sail order" could be extended into the fourth quarter. 

Hendrix argues that several factors are helping the outlook for the sector. Carnival recently said it would increase the number of less efficient ships for disposal to 18, representing 12% of its pre-pandemic fleet. Along with delays in new ship deliveries, the drop in supply should help the industry recover once demand resumes.  

As with the similarly struggling airline sector, cruise operators have put together new cleaning and safety protocols to make consumers comfortable with boarding vessels again. Norwegian and Royal Caribbean joined forces in July to create the Healthy Sail Panel, consisting of experts in public health, infectious diseases, and other applicable areas. The panel has presented its recommendations to the CDC, boosting confidence that the agency will soon be able to lift the ban on sailing. 

Now what 

There are many risks and uncertainties remaining for the industry. Besides the need to regain consumer demand, the continued global spread of the coronavirus has left upcoming destination events uncertain. Today, Brazil announced the cancellation of Rio's 2021 spring Carnival celebration for the first time in a century, for example.  

If the CDC lifts the no-sail order, or at least includes positive comments in announcing an extension, investors could quickly move back into the sector. Shares of the major cruise operators severely trail in the recovery. Since the start of 2020, shares of Royal Caribbean remain down more than 50%, and both Carnival and Norwegian shares are down more than 70%. 

Any good news anticipating a resumption in operations should attract investors looking to capitalize on the recovery.