The Pros And Cons Of Investing In Cruise Stocks Right Now

Cruise lines were some of the hardest hit stocks in the market during the pandemic sell-off in early 2020, but they've been some of the top performers since the market bottomed.

Cruises won’t be resuming until 2021, but one analyst raised his price targets for cruise stocks based on increasing optimism about 2022 and beyond.

The Analyst: Bank of America analyst Andrew Didora made the following price target adjustments on Thursday:

• Carnival Corp CCL reiterated a Neutral rating, price target raised from $15 to $22.
• Royal Caribbean Cruises Ltd RCL, reiterated Neutral rating, price target raised from $34 to $60.
• Norwegian Cruise Line Holdings Ltd NCLH reiterated Underperform rating, price target raised from $18 to $25.
• Related Link: Cruise Stocks Sink After CDC Lifts Ban, Analyst Says New Guidelines Delay Recovery

The Thesis: Didora highlighted some of the pros and cons of investing in cruise stocks at this point.

Pros include the fact that cruise stocks are a pure play on a return to leisure activity, and the potential for highly effective coronavirus vaccines could put prior peak earnings back in play.

Cons to investing in cruise stocks include a long path to revenue recovery and the need to potentially raise additional capital in the meantime. Didora is projecting revenue-generating cruise services will begin again in March based on the latest CDC requirements. Between now and then, Didora said the cruise lines will continue to pile on more net debt to stay afloat.

“With a delay in revenue service, additional capital is key, and balance sheet stress could continue,” Didora wrote in the note.

Bank of America is projecting 2021 year-end net debt for Carnival, Royal Caribbean and Norwegian will be 100%, 77% and 47% higher than 2019 levels, respectively. At the same time, diluted share counts will also be 56%, 6% and 46% higher, respectively.

Benzinga’s Take: The three cruise stocks are all up at least 80% since the March market low, which is a huge run for three businesses that are still dead in the water until at least March. The ultimate fate of the industry will be determined by how long it takes the leisure travel business to recover and whether or not the pandemic has permanently changed consumer demand.