It's Thursday, and cruise tourism stocks are sinking.
As of 10 a.m. ET, shares of cruise industry leader Carnival Corporation (CCL -2.77%) are off 5%, followed by Royal Caribbean (RCL -3.26%) with a 5.4% loss and Norwegian Cruise Line Holdings (NCLH -7.45%) -- down 5.8%. Fair or not, the blame for all this selling probably lies at the foot of Norwegian's gangway.
As you've probably heard by now, Norwegian Cruise Line Holdings reported its Q1 2022 earnings on Tuesday. Investors were happy to hear it -- bidding up Norwegian stock nearly 10% at one point -- but the news still wasn't great. Norwegian missed on revenues, reporting only $522 million where Wall Street wanted $655 million. Its quarterly loss of $1.82 per share (pro forma) was worse than expected, too. And to top it all off, Norwegian told investors it will lose money in Q2 as well.
This bad news sparked a series of price target cuts on Norwegian stock yesterday, with Wells Fargo for instance cutting the shares to as low as $21 in implied valuation. But here's the thing: $21 would actually be good news for Norwegian Cruise stock, which currently trades closer to $15 -- and analysts at Deutsche Bank and Credit Suisse think the stock could be worth as much as $23 or even $33, respectively.
(And if Norwegian stock does go to $33, that would be a clean double for the stock -- not a great reason to sell.)
And there's even more good news for cruise line investors. Giving commentary on its earnings Tuesday, Norwegian confided that it's seeing "strong" consumer spending on board its ships, "snapping back and even exceeding where we left off in 2019." Q2 2022 may be a bit rough for Norwegian, granted, but already CEO Frank Del Rio is predicting record financial performance in 2023, as CruiseIndustryNews.com reported today. And demand for cruise services is in fact looking so strong that the company plans to increase its guest capacity by 50% through 2027.
Nor is Norwegian an outlier. Carnival subsidiary Princess Cruises agrees that consumer demand looks robust, saying more than half its customers are voluntarily paying an extra $50 or even $75 for a "Princess Plus" or "Princess Premier" package that deliveries additional services on board. That translates into multiple hundreds of dollars per passenger over a multiday excursion and confirms what Norwegian was saying about consumer demand being strong.
All that said, I do get why investors are starting to turn pessimistic about cruise stocks again. As recently as January, Wall Street analysts were telling us that both Norwegian and Royal Caribbean stocks would be profitable again as early as Q2 of this year -- but that's clearly not going to happen. The latest forecasts from S&P Global Market Intelligence show all three major cruise lines losing money until at least Q3 2022 and Q4 being rather hit or miss.
That being said, things should start to settle down in 2023 and thereafter. And with Norwegian, for example, selling for less than nine times 2023 estimated earnings, Carnival costing 9x 2023 earnings on the nose, and Royal Caribbean valued just a bit over 10x, there's still hope that these stocks will reward investors. You just may need to wait another year to see it.