Norwegian Cruise drops, cruise stock outlook

Cruise lines are having a chaotic year.

The three major cruise liners — Carnival Corp., Royal Caribbean and Norwegian Cruise Line Holdings — have been under pressure for months amid the coronavirus-driven shutdown, seeing their stocks each lose over 70% and being forced to tap into backup financing.

Norwegian shares fell more than 22.5% Tuesday after the company said it would seek roughly $2 billion in financing from investors including private equity firm L Catterton in an effort to stave off bankruptcy. Norwegian warned that there was “substantial doubt” around its ability to operate under such difficult circumstances.

The announcement came one day after Carnival Corp. subsidiary Carnival Cruise Line said eight of its ships would resume service starting on Aug. 1. Carnival CEO Arnold Donald told CNBC in mid-April that “bookings for 2021 are strong” despite a “devastating” 2020.

Carnival shares have lost over 74% year to date, while Royal Caribbean shares have fallen over 72%. Norwegian has been the hardest hit of the three, with a nearly 81% loss for 2020.

Some don’t think the pain will end anytime soon.

“I think that the cruise liners are the ones that are going to get hurt the absolute worst out of this,” Danielle Shay, director of options at Simpler Trading, told CNBC’s “Trading Nation” on Tuesday.

“I really don’t think they’re going to come back anytime soon,” she said, likening a cruise ship to “a floating petri dish.”

“Even if they do have somewhat of a capital raise, eventually, they’re most likely going to head towards bankruptcy and their stock price could head down to 5, even to 0,” she warned.

One trader saw near-term opportunity in the laggard of the group.

“If you look at the chart of Norwegian, the stock got hit quite hard when that news came out at the very beginning of April,” Matt Maley, chief market strategist at Miller Tabak, said in the same interview.

When Carnival’s recent bond sale was successful, Norwegian’s stock “started to rally a little bit,” Maley said. “[The] decline in Norwegian today might actually provide a very, very … short-term opportunity for the stock to bounce a little bit. But I think it’ll be short-lived.”

Maley added that in both Norwegian and Carnival’s stock charts, their “moving average convergence divergence” indicators, which track momentum, are “rolling back over.”

In fact, they’re “curling back over at a much lower level than they did earlier in the year, showing the momentum of these rallies was very, very poor — very feeble bounces compared to the rest of the market,” he said. “If they do bounce, you don’t want to be chasing them. If anything, you might be looking to short them again.”

Carnival’s stock closed nearly 9% lower on Tuesday. Royal Caribbean ended trading down more than 10%. Both stocks were up in Wednesday’s premarket.

Disclosure: Shay owns shares of Carnival Corp. and Norwegian Cruise Line Holdings.


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