Cruise line stocks are bouncing back from last week’s travails. Last week, Royal Caribbean (NYSE: RCL) fell 5% after missing fourth-quarter earnings targets. The company warned that its profitability and tourism industry had been affected by the surging omicron variant, but it would return to profitability later this year. Other peers Carnival (NYSE: CCL) and Norwegian Cruise Line Holdings (NYSE: NCLH) fell by 2% and 1% on Friday.
But that was last week’s story. This week, there has been a bounce, and it is a significant one. Norwegian Cruise Line Holdings has grown 12.84% this week to stand at $23.72, Royal Caribbean has grown 9.45% and is selling at $88.05, while Carnival has risen by 12.96%. This growth is just for this week.
What can account for this tremendous surge in these cruise stocks? Well, here’s a brief on the companies to help you understand why.
For one, the coronavirus's omicron variant has been affecting these companies just like other companies in the tourism industry. That was why Royal Caribbean Royal Caribbean (NYSE: RCL) missed its earning expectations for Q4 2021. In their report, management warned that the variant would not diminish and would cut into the demand for bookings for H1 2022. However, the company gave a positive outlook for the future and said that they would return to profitability in just a few months. Unfortunately, that means the profit milestone foreseen by the company last year for 2022 will now be postponed to 2023.
Norwegian Cruise Line Holdings (NYSE: NCLH) is expected to release its Q4 2021 earnings report and revenue for the Fiscal year 2021 on February 24 this year. Its Q3 2021 earnings report complained of low demand due to the omicron variant and said that the company would return to profitability in H2 2022.
These are not good news for investors, and they responded negatively. But this week, analysts have been offering a positive take on the situation, which has helped the companies rebound. According to Steven Wiecynznski, an analyst with Stifel Nicolaus, the option left to cruise companies is to begin to float all their boats. Stifel Nicolaus says it will lower its 2022/2023 earnings estimates when this is done. However, they foresee that the delayed return to service of Royal Caribbean and Norwegian Cruise Line Holdings is only temporary and that by H2 2022, the variant headwinds would have abated.
Further, other analysts say the rebound of cruise stocks is because these companies are exceptionally set up as we head into H2 2022. As a result, the demand versus pricing patterns in the industry will continue to strengthen. It is also estimated that the risk surrounding increased capital raises by these companies seems, for the time being, remote.
I tend to agree with analysts on this take. Although the drag on profitability by the omicron variant is disappointing, from considering these companies and their history, this is likely a “short-term operational challenge.” Management's expectation of a return to profitability by the second half of this year is quite realistic.
The markets are also seemingly taking to the argument of the managers of Royal Caribbean about their projections and responding positively this week. There is renewed confidence in Cruise stocks given their rebound over the past four days. But S&P Global Market Intelligence believes that investors should not be expecting the impossible. The rebound will not be a fast event but would take time.