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Why Norwegian Cruise Line Shares Dropped 18% in July

By Howard Smith – Updated Aug 4, 2021 at 10:49AM

Key Points

  • Norwegian Cruise Line celebrated the sailing of its first ship in 500 days in July.
  • There is still uncertainty with a lawsuit related to proof of vaccinations out of Florida ports.

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The recovery for this cruise operator has hit a snag, but shares are still up 75% in the past 12 months.

What happened

Cruise operators, and their stocks, had been some of the hardest hit by the pandemic, for obvious reasons. But as the prospect of COVID-19 vaccines became a reality in the second half of 2020, investors piled back into these recovery stocks. Shares of Norwegian Cruise Line Holdings (NCLH 4.15%) steadily climbed from last year's lows as hopes of a broad reopening and resumption of travel and tourism gained steam. But those hopes, and the stock, have hit some speed bumps, and shares are down 30% since May, including a drop of 18.3% in the month of July alone, according to data provided by S&P Global Market Intelligence.

So what

To help lure guests back to its cruises, Norwegian committed to 100% vaccination of all crew members and vaccine-eligible guests on all initial voyages, in addition to other safety measures. But recent news of the fast-spreading COVID delta variant and breakthrough infections that are being reported among vaccinated individuals have investors backing away from reopening names. 

cruise ship on the water at sunset.

Image source: Getty Images.

One of the headwinds the company is facing is a legal battle with the State of Florida to be able to require proof of vaccination from its guests. Norwegian sued the state claiming a new law that prevents cruise companies from requiring proof of vaccination could jeopardize safe operation of its business. 

Now what

The company did hit a reopening milestone with its first cruise in 500 days on July 26, when one of its 17 ships sailed out of Athens. The company will sail its first ship out of U.S. ports on Aug. 7 from Seattle for an Alaskan cruise. But it remains uncertain if it will be able to launch its planned sailings out of Florida beginning Aug. 15. 

Competitor Royal Caribbean announced today that it expects to have 60% of its capacity operating by the end of August, and 80% of its fleet by the end of the year. Norwegian will report its second-quarter 2021 financial update before the market opens on Friday, Aug. 6. Investors can expect some volatility in the stock when the company updates investors on its plans to return to business. 

Howard 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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