Carnival Crusie (NYSE: CCL) and Norweigan Cruise Line Holdings (NYSE: NCLH) are receiving a big push from the bulls. Management, institutions, more specifically Barclays, and analysts are all predicting an upswing in CCL and NCLH in 2021. However, the bullish cruise line stock forecast is receiving some criticism. Especially in the areas of the pent-up demand being artificial and COVID-19 timeline delays.
Table of contents
- Bulls project an optimistic 2021.
- Do the bears have valid counter-arguments?
Bullish cruise line stock forecast 2021
The overarching argument for the bulls is that cruise lines are getting closer to setting sail once again. Investors are expecting the CDC to extend the no sail order beyond the 30th of September. However, the bulls argue that the chains will eventually come off, and are forecasting the lift-off to be shortly.
The management at NCLH, more specifically CEO Frank del Rio, holds a positive outlook for 2021. Frank attests to the quality of the Healthy Sail Panel for the bullish projections. For example, in a meeting with CNCB Frank stated, “we are very proud of what we have achieved … this is a breakthrough, no other industry has gone to the lengths we have gone to “. The Healthy Sail Panel is made up of group experts who studied the effects of the pandemic on the cruise industry and potential solutions. Considering the expertise, there is a high chance that the recommendations will see CCL and NCLH in the water soon. However, investors should take Frank’s testimonial with a grain of salt.
The bull leading the cruise line pack is Barclays. Barclays thesis is that cruise lines may still be in choppy waters, but the ocean should become calm soon. Analyst Felicia Hendrix, Barclays, summed up the argument on Friday by stating, “We believe we are nearing an inflection point for the cruise industry”. The expectation of the water becoming tame soon is why Hendrix upgraded CCL, NCLH, and RCL to overweight. Consequently, the bulls drove a rally across all three cruise line giants. However, investors should not blindly follow Barclays optimism. Because Hendrix explains how their position might be too soon and that they “believe the risk/reward is attractive”.
Bearish cruise line stock forecast 2021
The underlying bearish argument is that the cruise line expectations are overly optimistic. Essentially the bears are saying don’t hold your breath on the hopes of the CDC imminently lifting the sailing order.
While the management and Barclays are bullish, the question is will pent-up demand be material or marginal? Not to mention the unlikelihood of CCL and NCLH running at full capacity.
The demand forecasts are still unclear and look to stay murky until the vaccine begins to rollout. According to UBS analyst Robin Farley, “Costa Cruises, a unit of carnival resumed a few cruises” during September. The recent COVID free cruises from Italy further support the turnaround in demand. Moreover, according to Frank del Rio, “2021 will not be a record year … but it certainly will not be the disaster that 2020 has been”. Investors can conclude that the demand should not increase by a significant amount. At least not until the vaccine is widely accessible by early to mid-2021.
Some fundamental investors are flagging the CCL’s and NCLH’s recessionary earnings and revenue trends. For example, both company’s profits are not expected to turnaround until November, and December respectively. Despite the recovery, analysts are forecasting CCL and NCLH’s earnings to stay in the red until 2022. Negative earnings and revenue during early 2021 could deter fundamental investors from jumping in. There is some validity in these financial holes. Especially as the world is still waiting for a COVID-19 vaccine to provide reassurance. Overall, the bears expect cruise line stocks, such as CCL and NCLH, to remain at beaten-down levels for the beginning of 2021.
Before I begin, I remind our viewers that this is not advice but rather investment commentary from extensive research.
The 2020 volatility around cruise line stocks captures the essence of the stock market, which is expectations. Overall, the bulls hold the most convincing argument. Mainly because institutions and management have a firm conviction in the CDC lifting the sails order. Not mention humans were just deprived of adventure for multiple months. Hence, if a viable vaccine begins rolling out in April of 2021, then passengers should flock to CCL and NCLH (opinion not advice). However, cruise line stocks do hold risk. If the risk of COVID-19 delays is unpalatable, then allocating your capital elsewhere is not a bad idea.
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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.
Written by Patrick McLoughlin, Senior Manager of YIG.