what happened
Stock markets continued to recover from last week’s selloff on Tuesday, with the Dow, S&P 500, and the Nasdaq rose 2% or more in late morning trading. In the rally (surprisingly) are cruise stocks Carnival (CCL 13.29%), Royal Caribbean (RCL 16.65%)AND Norwegian Cruise Line Holdings (NCLH 16.84%). As of 11:35 this morning, they were up 11.5%, 11.7% and 12.6% respectively.
Image source: Getty Images.
And what
The latest news from cruise land was not good. On Friday, industry bellwether Carnival announced a massive loss in its third-quarter earnings report — a $0.65 per share loss, far worse than Wall Street’s projected loss of $0.13 per share — and revenues that were $800 million below forecasts. Adding to investor misery, Carnival warned that the fourth quarter is shaping up to be below average for bookings and that the company is anticipating another loss.
Carnival, along with Royal Caribbean and Norwegian, took the news on the chin, falling 23% (Carnival), 18% (Norwegian) and 13% (Royal Caribbean). The latter two recovered slightly on Monday in something of a relief boost, but Carnival continued to sink after three separate analysts cut their price targets for the stock. But with Carnival ruling out a return to profitability this year, the prospects for other cruise lines doing better in this competitive industry look bleak.
Now what
So why are these stocks rising today? The most logical answer is that short sellers have decided that after betting against the industry and winning that bet, now is the time to take the chips off the table, close out their short positions, and buy Carnival stock. , Royal Caribbean and Norwegian to return. investors from whom loans were taken.
This necessary buying activity would explain why cruise stocks are rising today in the absence of any good news for the industry. In fact, Carnival just nabbed another target price cut today, with Morgan Stanley saying the $7.70 stock is only worth $6 a share.
there are A potential positive catalyst on the horizon. Investors will have to wait nearly a month for earnings reports from Royal Caribbean and Norwegian that could counter the dismal forecast Carnival issued last week, but on Thursday, they can at least get a preview of the news. good. Norwegian Cruise Line plans to hold its 2022 investor day on Thursday and is inviting shareholders to submit questions.
After last week’s Carnival report, many of the questions are tantalizing. According to Cruise Industry News, question no. 1 from investors is what are Norway’s prospects for growing income. This is closely followed by questions about its debt load (lowest in the industry, but still $14 billion) and bankruptcy risk.
Depending on how well Norwegian answers those questions later this week, investors may find reason for optimism for the cruise line, and perhaps even Royal Caribbean.
Check back on Thursday to see if the Norwegian is able to continue today’s rally.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.
