Shares of cruise ship operators took double-digit dives Thursday to their lowest closes in years, as the global spread of the coronavirus fueled fears of a drop in travel demand.
Royal Caribbean Cruises Ltd.’s stock RCL, -16.28% plummeted 17.1% to $65.78, to suffer the biggest one-day drop since Jan. 30, 2009. The stock closed at the lowest price since Sept. 19, 2016. It has lost more than half its value (51.3%) since closing at a record $135.05 on Jan. 17.
Carnival Corp. shares CCL, -14.14% tumbled 14.1% to $27.87, which was their worst performance since Sept. 17, 2001. They closed at the lowest price since July 29, 2009.
And shares of Norwegian Line Holdings Ltd. NCLH, -13.36% sank 13.4%, which was the worst day for investors since they started trading in January 2013. They closed at the lowest level since June 24, 2013.
Analyst Joseph Greff at J.P. Morgan said he believed Royal Caribbean was the “best positioned” to weather slowdown in demand amid COVID-19 fears, and therefore the best positioned to outperform “coming out the other side.” Although Greff said Royal may have slightly more balance sheet risk than rival Carnival, he wrote in a note to clients that “we currently don’t see liquidity being a major risk (though the cruise sector has an unusually high amount of tail-risk, which is hard to quantify).” Read the latest coronavirus update.
He rates Royal’s stock overweight, and has a price target of $155, which is more than double (136%) current prices.
For Carnival, which is rated neutral with a $54 stock price target (94% above Thursday’s close), Greff wrote that although Carnival is the group’s largest and most diversified, with the “most conservative” balance sheet. However, he expects the stock to “underperform faster growth peers coming out of this event,” as the particular mix of headwinds, such as oversupply in Alaska and weak demand in Italy, will likely come back into focus.
Greff rates Norwegian’s stock overweight with a price target of $60, which is more than double (110%) Thursday’s close.
“Despite the near- to medium-term overhang of COVID-19, we see value for patient investors,” Greff wrote. He said the fact that Norwegian has the smallest footprint and most nimble of the group, with the youngest fleet, puts the stock in a position to outgrow its peers as the current demand overhang dissipates.
Royal said last month that the COVID-19 outbreak could shave 65 cents a share off 2020 earnings, while Carnival said it could face a negative earnings impact of 55 cents to 65 cents in 2020 if all operations are suspended in Asia through the end of April. Norwegian said last month the coronavirus outbreak could reduce 2020 earnings by 75 cents a share.
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Over the past three months, shares of Royal have lost 45.6%, Carnival has declined 37.0% and Norwegian have slid 47.3%, while the S&P 500 index SPX, -3.39% has slipped 3.0%.
Instinet analyst Harry Curtis said in a recent note to clients that Norwegian and Royal Caribbean shares should be owned, but “the mystery is when, since headlines could get worse.”