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Why Norwegian Cruise Line, Carnival Corporation, and Royal Caribbean Stocks Sank Today

By Rich Smith - Mar 16, 2021 at 12:38PM

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JPMorgan starts a stock rally, but then Norwegian Cruise torpedoes it.

What happened

Tuesday should have been a good day for investors in the cruise ship sector. Bright and early this morning, analysts at investment bank JPMorgan raised their price targets across the industry, predicting that within a year, Carnival Corporation (CCL 8.46%) (CUK 8.00%) stock will sell for $33 a share, Norwegian Cruise Line Holdings (NCLH 12.09%) will rise to $36, and Royal Caribbean (RCL 8.69%) will hit $110 a share.

But then Norwegian Cruise dropped a weapon in the water and torpedoed the stock rally. As of 11:30 a.m. EST, Carnival stock is down 3.1%, Norwegian is down 3.3%, and Royal Caribbean is lowest in the water -- down 4.2%.

Origami money

Image source: Getty Images.

So what

According to JPMorgan, lights are flashing green across the cruise ship sector. "We expect to see new CDC guidance" permitting cruise lines to resume at least trial cruises "relatively soon, and our sense is that specific instructions will generally be more agreeable than the last update in the fall," writes the analyst in a note covered by today. "We also expect a steady drumbeat of announced and ultimately successful ship launches in various places around the world into the spring and summer months ... as brands restart marketing programs."

Best of all, with demand for cruises looking strong, JPM predicts an "upward move to ticket pricing (which is the most important catalyst, to us)." And for every 5% ticket prices go up, the analyst forecasts a "~15%+ equity value" increase in the stocks.

So far, so good.

Now what

But cruise ships will need to start cruising before they can actually collect on any pricier tickets they sell. Unfortunately, it seems that's going to take a bit longer than expected. In the latest in a series of disappointing announcements across the industry, this morning Norwegian Cruise Line Holdings announced that it is suspending "all voyages" across its several brands through June 30, 2021.  

So far, it's only Norwegian pushing back cruising by one more month. At last report, Carnival and Royal Caribbean were still pausing their U.S. cruising only through the end of May 2021. For more than a year, however, these companies have been following each others' moves like ducks in a row. Chances are good that before the week is out we'll be seeing announcements of cruise postponements at Carnival and Royal Caribbean as well.  

And that's why all three cruise stocks are sinking today.

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Stocks Mentioned

Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
$15.39 (12.09%) $1.66
Carnival Corporation Stock Quote
Carnival Corporation
$13.21 (8.46%) $1.03
Royal Caribbean Cruises Ltd. Stock Quote
Royal Caribbean Cruises Ltd.
$55.53 (8.69%) $4.44
Carnival Corporation Stock Quote
Carnival Corporation
$12.28 (8.00%) $0.91

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

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