Please ensure Javascript is enabled for purposes of website accessibility

Why Norwegian Cruise, Carnival Corporation, and Royal Caribbean Stocks All Sank Monday

By Rich Smith - Updated Jan 25, 2021 at 2:02PM

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

Carnival suspends some cruising well into the fourth quarter of 2021.

What happened

Cruise line stocks are tanking as the trading week gets under way. As of noon EST Monday, shares of Norwegian Cruise Line Holdings (NCLH -4.08%) are down 4%, Carnival Corporation (CCL -3.31%) (CUK -3.32%) is down 5.9%, and Royal Caribbean (RCL -3.52%) is down an even 6%.

But it's Carnival pulling the whole sector lower.

A paper boat that says "news" riding on paper waves.

Image source: Getty Images.

So what

This morning, the world's biggest publicly traded cruise line announced a new slew of "ship-specific cruise cancellations and movements." Among the new developments, three cruise ships -- Carnival Magic, Carnival Paradise, and Carnival Valor -- are going to be laid up in dry dock until November 2021, and cruises aboard these ships that were slated to begin as early as June will now be canceled.  

And that's the good news.

Carnival may be the catalyst for today's sell-off, but it's not the only cruise line encountering difficulties. As Barron's noted on Friday, cruises aboard all three major cruise lines are now not expected to resume before the fourth quarter of 2021, or even early 2022.  

Now what

Carnival's announcement this morning appears to support that bearish prognosis.

Throwing cold water on bullish investors who've cited increases in bookings for 2021 cruises as a reason for optimism, Barron's quoted analysts at Truist Securities warning that "we now see July as the best case for restart" (emphasis added). This suggests that cruise lines, which have now uniformly canceled all cruises out of U.S. ports through the end of April, could very well be forced to postpone cruising repeatedly even as spring and summer approach.

What does this mean for investors? Choppy waters, to borrow a phrase. If Truist and Barron's are right, then we seem to be looking at a scenario in which cruise stocks may repeatedly be bid up in anticipation of an approaching end to cruise suspensions, and/or updates on bookings numbers, only to have the rug pulled out from under investors as those cruise suspensions stretch farther and farther back into the calendar year.

Adding to investors' dismay, as cruise lines come to the realization that they won't resume cruising as soon as they had hoped, they may need to issue more stock to raise more cash -- diluting shareholders in the process.

By the time cruising does resume, and Carnival, Norwegian, and Royal Caribbean turn profitable again, those profits may turn out to be a whole lot thinner than investors today expect.

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

Carnival Corporation Stock Quote
Carnival Corporation
$13.13 (-3.31%) $0.45
Royal Caribbean Cruises Ltd. Stock Quote
Royal Caribbean Cruises Ltd.
$55.41 (-3.52%) $-2.02
Carnival Corporation Stock Quote
Carnival Corporation
$12.23 (-3.32%) $0.42
Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
$15.30 (-4.08%) $0.65

*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 service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/22/2022.

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.