Is it a Good Time to Buy CRUISE LINE STOCKS?

The huge dropdown of cruise line stocks does seem like an opportunity to buy in.

When I look at Royal Caribbean, Norwegian Cruise Line and Carnival Corporation, first of all, I want to make sure they can live through COVID, aka, its short term liquidity. By looking at its cash position and funding sources, Royal Carribean is able to last 16 months without revenue; Norwegian Cruise Line is able to last 26 months; Carnival Corporation, the biggest cruise line, is able to last 9 months.

The second I would like to know is the return potential for its stocks. If I only add its price target by analysts and dividend yields, Royal Carribean and Carnival Corporation are at 46% for next year compared to Norwegian Cruise Line at 25%.

The third is how well the company is likely to recover post COVID. I took some notes from a Credit Suisse analyst. He says Royal Carribean’s boats require little or no air travel to get on. This relieves the concern for people who are fear over air travel. For Norwegian Cruise Line, it offers a differentiated vacation, within an oligopoly, at a significant discount to other land-based alternatives and as such he believes it will see demand for the product come back. Carnival Corporation however, does not have as bright an outlook at the other two companies. Except for its financial health issue, one of CCL main sources of revenue is its European itineraries (~30% of capacity) with guests from Europe, it adds an additional layer of risk to the story not present in the other two.

With the three factors combined, I would prefer Royal Caribbean, Norwegian Cruise Line because they are financially more sound than Carnival Corporation, which burns much more cash compared to its cash positions.

However, no matter which stock you buy, they all face the same biggest risks: HOW LONG WILL COVID LAST? HOW QUICKLY WILL PEOPLE GO BACK ON BOATS AFTER COVID?

I would monitor the growth rate of total cases until it drops to a certain threshold, say 1%. I don’t see as many people as prior to the outbreak go back on boats very soon. While cruise line stocks seem like bargains, and you may see some returns if stock market keeps going up, it might take their stocks longer than expected to go back to previous level.

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