Carnival Corp (NYSE: CCL) and Royal Caribbean Cruises (NYSE: RCL) have captivated investor interests as the cruise liners lost 70-75% value as COVID-19 grappled the cruise line industry. Both cruise liners have been on a gradual increase since the initial cliff-fall as speculators continue to buy the corporate giants at discount value. COVID-19 has seriously crippled the demand for cruise-holidays, ultimately dropping the sinker on any short term business for these corporations for the good part of 2020. The big question is when will cruise liners successfully bounce back from the horror start to 2020?
Table of contents 1. Introduction 2. What do experts believe is fair value for Carnival and Royal Caribbean? 3. Where to from here for the cruise line giants?
What do experts believe is “fair value” for Carnival and Royal Caribbean?
The fundamental consequences of this ultimately required restructuring amongst all industry related businesses. These restructures included the liquidation of assets to cash, as well as slimming all running costs. This is important to understand before going into a fair value of what these two companies may be worth. With COVID-19 continuing to create problems throughout the US today, it would be wise to note this within your own calculation of risk (opinion).
CCL Price targets
Carnival (NYSE:CCL) is currently trading at $14.80, a 67% loss of value over the last 6 months. The current price targets according to the Wallstreet Journal are at $14.77 on average with a lower target set to $9.93 and higher targets set to $24.00. Recent downgrades from analysts are of the result of further pushbacks on CCL operations. The main argument for downgrades by analysts is associated with the interest expense CCL will incur in the coming years. This will directly effect their profitability margin forecasts for the next 3-5 years.
RCL Price target
Royal Caribbean Cruises (NYSE: RCL) is currently trading at $50.83, a 56% loss of value over the last 6 months. The Current price targets for RCL are averaged at $54.77 according to the NASDAQ. These price targets swing from equilibrium between a high target of $85 and a lower target of $33. RCL has been the stronger of the two companies in analysts eyes.
With COVID-19 orchestrating the current market momentum, further complications with containment may push Carnival and Royal Caribbean targets even lower. However, investor momentum is set to surge in great multitude once we can confirm “no sail orders” can be lifted indefinitely. There has been speculation that RCL and CCL will experience “historical” demand in the year 2021.
Where to from here for the cruise line giants?
Before I begin, I am obliged to remind our viewers that this is not financial advice but rather financial commentary from extensive research in the field
Short answer: There are short term and long term implications for both cruise lines. How the cruise lines mitigate the long term implications will be the X factor for value investors.
COVID-19 has had a detrimental impact on the cruisline industry. Putting the entire industry on hold will have both short term and long term implications that executive management will have to mitigate. The discounted price is the reward for the risk you are taking on when buying a company that can’t run.
The long term shareholders with substantial holding, will be more concerned with the long term implications of COVID-19. As mentioned, increased interest and debt will further play an impact on profitability and the balance sheet. These impacts are a red flag for long term shareholders. We remain to have a balanced view on the cruise line industry – a historic account of “risk-reward”.
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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.