To put it tactfully, cruise ship operator stocks haven't been very popular with investors over the past few years. Compounding that, on Monday, a new and downbeat analysis from a noted bank dinged stocks in the sector. As a result, two of its leaders, Carnival (CCL 0.13%) (CUK -0.36%) and Norwegian Cruise Line Holdings (NCLH -1.04%), both lost steam. The former's common stock price declined by almost 0.2%, and the latter's by 1.3%.
Bank of America Securities analyst Andrew Didora isn't hopping aboard a bull cruise anytime soon. The prognosticator lowered his price targets for both Carnival and Norwegian Monday morning before market open. In his opinion, Carnival is now worth $18 per share; previously, Didora's level was $22. Norwegian got a slightly deeper cut, down to $20 per share from the preceding $25.
Didora's two main concerns echo the worries of many travel industry investors. Specifically, he's concerned about the persistence of the still-evolving coronavirus outbreak and the massive levels of debt taken on by cruise ship operators forced to suspend their operations during the worst months of the pandemic.
"We think this debt issuance at these levels of liquidity shows the refi needs of the cruise industry in the face of rising interest rates plus concerns around a spike in COVID cases (cruises still test)," he wrote in a new research note.
Including ship debt amortization, Didora pointed out as an example that Norwegian has $1.8 billion in debt security maturities coming due through 2023. No matter how well the company and its cruise industry peers recover with the rebound in the tourism industry we've witnessed lately, they will still be hobbled by such obligations. Investors should continue to monitor balance sheet developments with all cruise operators as we move through the summer tourist season.