Cruise Line Stocks May Be the Next to Sink

One group I've missed as I've railed against consumer discretionary are the cruise lines; one reader had mentioned it in comments late last week, so I started looking into it. An analyst is out today against Royal Caribbean (RCL) raising liquidity concerns - which is a kiss of death in this type of market. I assume cruise ships are not too big too fail, but who knows anymore.

• Barclays Capital cut its share price target for Royal Caribbean Cruises Ltd (RCL), the world's second largest cruise operator, to $1 from $20 and its rating on the stock to "underweight" from "equal-weight".
• "While it is well known that cruise demand has been declining precipitously since last fall, we do not believe the magnitude of the decline is appreciated," Barclays said in a note to clients on Wednesday.
• "While we believe RCL will stay solvent, we estimate the company would become precariously close to facing liquidity issues," Barclays added.
• A spokesman for Royal Caribbean Cruises told Reuters the company was in its "quiet period" ahead of publishing fourth-quarter results on Jan. 29 and would not comment on liquidity issues or any research reports.
• Barclays lowered its earnings per share estimate for 2009 to a negative $0.92 from $1.98 and initiated a 2010 EPS estimate of minus $1.22.
• It said it expected Royal Caribbean to miss fourth-quarter consensus estimates and report a 10 cents per share loss for the quarter.

I'm adding this to my potential short list - I am afraid to get involved right ahead of earnings reports - competitors include Carnival (CCL). I haven't done enough homework yet on this grop to really differentiate.

Always a bear market somewhere.

Disclosure: No position

Comments

[Vobogeck:]

As I have mentioned before, Seeking Alpha should be re-labelled to reflect its position as the favourite vehicle for shorts like Trader Mark to publish scare stories like this. These sort of stories become self-fulfilling as the chicken littles dump the stock.

There is no "analysis" in this article, just more regurgitating of other people's doom and gloom. Is it possible that cruise line stocks being down more than 50% already factors in the bad news?

Disclosure: I have not cancelled my Alaska cruise booking, have already been upgraded once, and look forward to cruising on a half empty ship. My sister in law is also looking forward to her carribean cruise next month.

Jan 28 06:15 PM

[PROXIMO:]

Thanks for the article. I doubt luxury cruises will be on the top of most consumers' "to do" list for a long time to come. Does not seem much of a stretch to figure a negative impact on the cruisers' bottom lines.

Jan 28 06:51 PM

[mpharbold1:]

Glad you brought this to light. I would have guessed cruise operators were doing ok based on aging demographics, but this article would make me look much more closely before buying.

Jan 28 07:49 PM

[{5U}:]

Mark is the man. Unless if you want to trade the bounces be a bear.


On Jan 28 06:15 PM Vobogeck wrote:

> As I have mentioned before, Seeking Alpha should be re-labelled to
> reflect its position as the favourite vehicle for shorts like Trader
> Mark to publish scare stories like this. These sort of stories become
> self-fulfilling as the chicken littles dump the stock.
>
> There is no "analysis" in this article, just more regurgitating of
> other people's doom and gloom. Is it possible that cruise line stocks
> being down more than 50% already factors in the bad news?
>
> Disclosure: I have not cancelled my Alaska cruise booking, have
> already been upgraded once, and look forward to cruising on a half
> empty ship. My sister in law is also looking forward to her carribean
> cruise next month.

Jan 29 08:45 AM

[Marcap:]

Cruise travel is obviously taking a big hit just like most other luxuries. The last thing most people are looking at these days is spending a few thousand dollars on a luxury vacation. Sadly what another commenter fails to realize is that sailing on a "half empty ship" is not much fun at all. When that happens, everything is cut back to compensate. Food, entertainment, service, and so on all are cut back to compensate for the reduction in revenues, while prices on items you pay for such as bar and excursions are all raised. If anyone believes otherwise, unfortunately they have not cruised very much.

Jan 29 09:11 AM

[billd10:]

Cruises are still among the best vacation bargains. For some, like the fall New England cruises, the ships are filling up and the lowest priced cabins are unavailable. This article sounds like the typical whiny gloom and doom we are subjected to on a daily basis. Cruise line stocks are about as cheap as they have ever been and about as cheap as they'll ever get.

Jan 29 11:36 AM

[socphd71:]

We're a senior couple. Our most recent cruise was Oct. 2008 with Costa (a subsidiary of Carnival). There were many people on the ship. Our next cruise is in April with Royal Caribbean. We booked both at good prices. Aida (a subsidiary of Costa) is our favorite cruise line. Aida is inaccessible to most Americans since the language on board is German. It is more expensive than Costa or Royal Caribbean.

My wife keeps up on some of the cruise news. I believe that Trader Mark is probably correct but he omitted an important fact. Many cruise lines have new ships coming in 2009 and 2010. They were ordered years back when the cruise business was booming. Even if the same number of people cruised for the same number of days as in 2007, the increased capacity would give the cruise lines problems.

Jan 29 05:18 PM

[Ryanwahlstrom:]

Don't wait 3 more months before your next update of wave season booking trends. <a
href="cruisemarketwatch.com/.../">Cruise
Pulse survey tracks monthly travel agent booking trends and
based on results Cruise Market Watch revised downward worldwide
cruise revenue estimates for 2009. Updates during the wave season and subsquent quarters of 2009.

Feb 03 07:28 AM

[tribbletrubble:]

Patronizing cruise lines, as tourists or as investors, is un-American activity. No major cruise line is registered in the United States (the dictatorship of Liberia is most popular for this). As such, none of them hire Americans (we are too expensive to hire). When you support cruise lines you are dumping your money directly into the economies of questionable or downright oppressive governments.

Mar 24 11:22 AM

[socphd71:]

News about Royal Caribbean -- not an April Fool's:

www.cruisecritic.com/n...

Apr 01 07:24 PM