Tourism is ready to roar. Should You Buy These 3 Cruise Stocks?
There are good reasons why investors Carnival (CCL -3.43%) (CUK -2.84%), Royal Caribbean Cruises (RCL -2.99%)and Norwegian cruise lines (NCLH -2.37%) have a bad feeling about their actions. COVID-19 was just starting to look like a rear-view mirror, and now we have a monkeypox outbreak on our hands.
The World Health Organization (WHO) says there are more than 6,000 cases of the once rare and sometimes deadly disease (80% of them in Europe), while the US Centers for Disease Control says that ‘there are more than 600 confirmed cases in the United States, mostly clustered in California and New York. Although the WHO does not yet consider the outbreak a health crisis at this time, the last thing cruise lines need is another global pandemic.
Shares of cruise lines aren’t even treading water this year, having lost half their value on average so far, but their shares were already heading for Davy Jones’ locker beforehand, with shares down 63% on average over the past 12 years. month. They are also still significantly below where they were trading before the coronavirus pandemic hit.
Despite the storm clouds hanging over the industry, there may be rays of sunshine trying to break through. They could signal that cruise line stocks are low enough to buy now. Let’s see.
out of the storm
The United Nations World Tourism Organization (UNWTO) has called 2020 the “worst year in tourism history” as there were 1 billion fewer international arrivals, a 74% drop from last year. the previous year. In comparison, during the global economic crisis of 2009, there was only a 4% drop in arrivals.
While many travel and tourism stocks rebounded last year as economies reopened and travel restrictions were lifted, the health of the industry was still in turmoil as arrivals rose just 4% per year. compared to 2020. They are still 72% below pre-pandemic levels, or the equivalent of a $1.6 trillion loss in economic contribution compared to 2019.
Yet the UNWTO’s World Tourism Barometer suggests a rebound could be on the horizon, with the first quarter seeing a 182% increase in international arrivals to 117 million from 41 million a year ago.
Additionally, 83% of the UNWTO Expert Panel expect 2022 to be “better” or “much better” as travelers spend around $1,400 per trip today compared to $1,000 per trip. in 2019.
Consumers want to take off
Obviously, tourism is not limited to cruises. But even the results of Carnival, Royal Caribbean and Norwegian confirm the optimism expressed by the WTO.
Carnival announced last month that it had 74% of its fleet capacity in guest cruises in the second quarter, and at the end of June it was at 91%. Occupancy was also higher at 69% from 54% in the first quarter, and customer deposits increased by $1.4 billion to more than $5 billion for the period. The cruise line also has $7.5 billion in available cash.
Meanwhile, Royal Caribbean is at 95% capacity and its bookings are 40% ahead of the 2019 rate. Norwegian was able to report that all of its ships across all of its brands have resumed sailing, and its bookings are well. ahead of its historical rates.
Although Norwegian admits that one of the reasons for this trend is that there is currently space on its cruise ships that is not generally available, the cruise line is still experiencing very high demand for the seasons of cruise 2023 and 2024.
Avoid the next rogue wave
There is no doubt that cruise ships have yet to arrive safely. The war in Ukraine, for example, disrupted the flow of bookings due to uncertainty, but they have since picked up the pace.
This has resulted in the industry being significantly undervalued, trading well below its expected historical earnings rate, especially compared to the run-up to the pandemic. Although there are still concerns about a recession, the three cruise lines are confident that their businesses are, if not recession proof, then at least recession resistant. They also maintain that they are better positioned to weather any new storm than any of their terrestrial competitors.
Carnival, Royal Caribbean and Norwegian Cruise Lines have bounced back well above the hole they fell into at the start of COVID, but as a group they are still cheap. As their industry sees strong indications of recovery, investors may want to walk away with cruise line stocks.