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Is It Too Soon to Get Back Into Cruise Line Stocks?

By Rick Munarriz – Updated Aug 20, 2021 at 3:50PM

Key Points

  • Deutsche Bank bumped price targets for two cruise lines higher, but even the enthusiasm expressed two weeks ago may not longer be valid.
  • The third cruise line received a price goal update that is below where it is now.
  • With COVID-19 case counts of passengers rising -- and now a confirmed death -- it's going to be a challenging recovery for the industry.

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Carnival, Royal Caribbean, and Norwegian Cruise Line got price target increases this week, but the news isn't as good as it seems.

It's a cruel twist on the open seas. Cruise line stocks Carnival (CCL 1.85%) (CUK 2.06%), Royal Caribbean (RCL), and Norwegian Cruise Line Holdings (NCLH -0.79%) soared higher in the year leading up to their summertime return to cruising. Now that all three industry bellwethers are sailing again on a limited basis, the stocks are barely treading water.

Carnival, Royal Caribbean, and Norwegian Cruise Line entered Friday's trading at price points 31%, 23%, and 33% below their recent highs, respectively. Some analysts are stepping up with higher price targets, but those new goals offer little in terms of upside from today's depressed levels. What if the cruising industry threw a coming out party and nobody came? It seems as if we're starting to find out.

Two couples playing games on shoreline with a cruise ship in the background.

Image source: Getty Images.

Analysts walk the plank

Chris Woronka at Deutsche Bank lifted his price targets for the country's second- and third-largest operators on Friday. He feels that the market hasn't rewarded the bullish reports posted by the two cruise lines earlier this month. Royal Caribbean and Norwegian Cruise Line offered up rosy updates on 2022 bookings, with passengers paying more than before even including the impact of future cruise credits handed out to folks on nixed sailings since March of last year. The stocks have not responded. 

Woronka gets it. There are plenty of question marks here on the pace of the recovery, especially now that the delta variant has caused a surge in COVID-19 cases. Even more problematic is that breakthrough infections -- new cases of those already fully vaccinated -- are on the rise. The summertime game plan to set sail with largely if not entirely vaccinated crews and passengers suddenly isn't as airtight as it seemed even two weeks ago when Royal Caribbean and Norwegian Cruise Line reported fresh financials. Carnival operates on a different fiscal year, so it won't announce quarterly results until late next month. 

The new price targets don't offer a lot of upside. Boosting Royal Caribbean's goal from $80 to $83 is just 8% higher than where the stock is now. Woronka's new target for Norwegian Cruise Line -- going from $25 to $26 -- is a marginally better 13% of upside from Thursday's close. Despite the upticks, it's telling that Woronka is sticking to his neutral hold rating for both stocks.

It could be worse. A day earlier HSBC raised its price target on Carnival to a level that is well below where the shares are now. Carnival has had a particularly rough run lately as the industry leader. It had the biggest post-pandemic COVID-19 outbreak to date on its Carnival Vista ship, with 27 people testing positive. Most of them were crew members, but it just goes to show how the contagious the deadly virus can be in the tight constraints of a cruise ship. One of the elderly but vaccinated passengers in that group succumbed to the virus and died this week.

Investors in cruise line stocks need to understand the risks here. Early reviews from the first wave of cruising passengers this summer have been mixed at best. There's no shortage of complaints, from the on-board experience limitations in the new normal to young families that didn't realize that their unvaccinated children wouldn't be able to get off at some port-of-call destinations. As summer shifts to fall -- and the average age of the seafarer skews older -- we have to consider that many elderly passengers that were vaccinated earlier this year are increasingly susceptible to the virus without a booster shot. Hold tight, investors. The waters are still pretty rough out there.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Carnival & Plc Stock Quote
Carnival & Plc
$9.93 (1.85%) $0.18
Royal Caribbean Stock Quote
Royal Caribbean
$59.93 (%)
Carnival & Plc Stock Quote
Carnival & Plc
$8.94 (2.06%) $0.18
Norwegian Cruise Line Holdings Stock Quote
Norwegian Cruise Line Holdings
$16.44 (-0.79%) $0.13

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

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