Entering text into the input field will update the search result below

Choose Among The Best To Sail With Carnival, Norwegian, Or Royal Caribbean Stock

Mar. 08, 2021 5:28 PM ETCarnival Corporation & plc (CCL), NCLH, RCL65 Comments
Tim Dunn profile picture
Tim Dunn


  • The global cruise industry has been paralyzed by the Covid pandemic.
  • Carnival, Norwegian and Royal Caribbean operate the majority of global cruise capacity.
  • The three U.S. cruise companies are working toward a return to normal operations.

The cruise industry has been one of the most deeply impacted by Covid. Few people will forget the early days of the pandemic with images of cruise ships stranded in foreign ports with news of mass infections and foreign governments' refusals to allow cruise passengers to disembark. Unlike any other segment of the travel industry, the cruise lines engaged in one of the most complicated processes to suspend their operations, get passengers home, secure their vessels in ports that would accept them, and then send most of their staff back to their homes, all using procedures that were never necessary during non-Covid times.

As vaccinations increase and with encouraging signs of diminished Covid case and death rates in several western countries, the cruise industry is eyeing a return to normalcy. Unlike other components of the travel industry, the cruise industry faced unique challenges during the worst of the Covid era and those challenges will remain as operations are restarted. Many travel-related stocks have seen significant increases in recent weeks, offset by the market selloff on March 4 and 5, 2021. Investors could be well-positioned to participate in a significant uptick in the cruise industry - or they may be forced to wait for more positive signs of recovery. We'll examine key considerations that investors should make when thinking about whether it is time to wade back into the cruise industry. Our focus will be to evaluate Carnival Corporation (NYSE:CCL), Norwegian Cruise Line Holdings (NYSE:NCLH), and Royal Caribbean Group (NYSE:RCL).

Will cruise line stocks recover?

At its core, the cruise industry is solely leisure and also a destination unlike most other components of the travel industry, which also reduces the incentive for governments to allow cruise operations to resume. The U.S. airline industry moved very aggressively to portray itself as an essential industry to the

This article was written by

Tim Dunn profile picture
Focus on multinational transportation companies. Mercosur economies.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (65)

Tim Dunn profile picture
Florida's governor is threatening to sue the CDC to get the cruise industry reopened this summer joining the cruise industry association. Both note that cruises have returned in multiple countries around the world. The cruise industry is a major revenue generator for Florida.
@Tim Dunn sadly it wont change a thing. its biden's world until 2022, we're just along for the ride.
CCL received 4b from stock and bond issuance earlier this year.Assuming a cash burn of 550m/ month, that 4b will be consumed in a little over 7 months. From the last report as of 11/30, that means that the 4b will be used up by the end of June. Unless the CDC changes its guidelines it is probable that cruising from US ports will be eliminated through Oct. Even though some revenue will be generated as CCL starts sailing from Caribbean ports , the fact that Canadian and Alaskan cruises will be eliminated and that Europe will be all but closed , CCL will still be burning cash through the end of the year, albeit at lower level than currently
That means more bond and stock issuance by the end of summer. At current stock prices it makes more sense to issue more stock, so shareholders should expect more dilution .
Before the crisis CCL had 710 shares outstanding .
Now fully diluted that number will stand close to 1.2b shares.At a stock price of 26 that equates to a market cap of 31.2b or 44 pre Covid. And that does account for the increase in long term debt of over 10b plus more stock dilution and debt to come.
@r cohn perhaps, but they ARE starting to book sailings for 2022.
I disagree that airlines bounce back quicker than cruise lines based on pre covid volume. Business travel is not returning anytime soon and that is a big profit engine for airlines. Granted vacation travel will spike for airlines but that is cyclical.
Tim Dunn profile picture
the ability to deal w/ the drop in business revenue has to do with the ability to reduce costs.
Some airlines are doing a good job at that.
And airlines can reconfigure airplanes to replace premium seats w/ coach seats if they see that business travel is down long-term.
In fact, Delta has said that their share of business travel has increased during the pandemic specifically because of their seat blocking strategy.
And multiple airlines are saying that they are seeing a return of small and medium business travel with corporations saying they expect to resume travel in the 3rd quarter which parallels the expected reopening of in-person workplaces.

Google just announced they are building new offices in new locations. Work from home and the associated no-travel work environment will end.
There will be reductions, but not elimination of business travel.

And cruise lines benefit from the same willingness to return to in-person normalcy.

thanks for reading and commenting
EliasMouawad profile picture
Nice article. I can't believe that investors are buying CCL at $29
A lot of cash burn, share dilution, debt...
@EliasMouawad It's because it was $55 precovid, so there is still money to be made if one can hold out
@mp11dx I think you didn’t get what he said...share dilution, debt, cash burn.....the share dilution and debt make the pre COVID share price equal some fraction of that now with those things taken into account.
Bulldog67 profile picture

You are making a rookie mistake by expecting the stock to return to previous levels. CCL has substantially higher interest costs that will eat into profits (even if they have a boom year like 2019), and the massive equity dilution will mean much smaller EPS going forward.
I also take what the CEOs of the largest cruise lines say about the market conditions. The CEO of Carnival just came out and said that they don't expect to return to pre-covid levels until 2023. Then, once you hit 2023, you are stuck with paying off the billions of dollars of debt that these guys all raised.

This whole industry is a mess from a financial perspective and is going to continue to be one for the next 5 years at least.

Tim Dunn profile picture
that is correct but many of the airlines are providing strong recovery guidance today. The cruise industry will follow.
@Tim Dunn There's two gigantic difference between the airlines and the cruise lines:

1. Airlines got free federal bailout money which makes their balance sheets FAR less impaired. The cruise lines didn't and will never get money from the feds because they aren't really US companies.

2. Airlines are essential for the functioning of society and nobody needs to go on an essential cruise, so they will always generate some revenue. NCLH's entire fleet could sink tomorrow and society would function just fine without them.
Tim Dunn profile picture
you are absolutely right and I noted those in the article - but travel demand will return. As I noted, airlines would go first but cruise lines will benefit. And I would bet that a decent percentage of stimulus money will end up as cruise bookings.
Can I pick none of the above? All 3 of them have huge financial issues with dilution, massively increased debt loads, deferred capex which will be required to be paid in 2022 once revenue starts and no clear path to generating any revenue for the next 8-12 months, let alone net profit.

None of the cruise lines will make any profit until 2023 if they are lucky and when they do, common shareholders won't see any of it.
Bulldog67 profile picture
@Tim Dunn

While cruise lines have been great trading stocks, they really aren’t investable given the massive change in their capital structures.

Your comment: “I would not recommend NCLH but I also do not believe it is necessary to sell it.”

You correctly point out that NCLH is the weakest of the three major lines. However, I will take issue with the last part of your statement above for the following reasons:

1). LT debt increased from $6.055 billion on 12/31/19 to $11.681 billion on 12/31/20. Since the beginning of 2021, NCLH has issued another $575 MM in senior notes while retiring approximately $400 MM of the convertible notes issued to L Catterton. So net increase of another $175 MM, bringing LT debt close to $12 billion.

2). All of that debt comes with an annual increase in interest expense of $319.219 MM. To put that increase in context, it would represent 34.32% of the $930.228 MM that NCLH earned in 2019, which was a very strong year for the company. So putting it another way, NCLH will need to increase earnings by over 34% just to have the same net income it earned in the strong year of 2019.

3). Any bull that thinks once the cruise lines are allowed to re-sail, everything will be OK, is sadly mistaken. The various lines will initially re-sail with only a few of their ships and those ships will most likely be limited to 50% or so of capacity to allow them to test their safety procedures. That means that 2021 will be another losing year, and it likely will also have a negative effect on 2022.

4). Equity dilution: During 2020 NCLH sold stock in May at $11.00, again in July at $15.00, and finally in November at $20.80. Then a couple of days ago, NCLH again sold a massive amount (47.6 MM shares) at $30.00. Given all those sales, and we have a total increase of 148,562,795 shares! That is a 69.54% increase from the 213,630,798 fully diluted shares outstanding on 3/31/20.

Thus NCLH, even if business becomes as strong as it was in 2019, earnings will only be 66% of what was reported due to the major increase in interest expense. Then one has to divide those lower earnings by about 1.7 to account for the higher share count from dilution.

Also in 2024 a convertible bond will be exchanged for stock at $13.75 followed by a 2025 convertible bond at $18.75 (assuming the stock is above that price). These two exchangeable bonds, if converted, will produce another 40.6% dilution.

5). Extremely weak balance sheet - NCLH during 2020 raised a total of $1.5795 billion in new equity with it’s three stock offerings. However, for all of 2020, shareholder equity on their balance sheet DECLINED by $2.16 billion ($6.516 billion to $$4.354 billion). Why ..... because operating losses reduce shareholder equity on the B/S! As a result of lower equity and higher debt, equity declined to only 23.66% of total capital at the end of 2020. If one adjusts for the goodwill and intangibles (fluff assets), then equity dropped to only 21.1% of capital at the end of 2020. That is an extremely weak B/S that will only get weaker with further operating losses.

6). NCLH announced on the 4Q CC that they have successfully deferred certain credit lines and debt to 3/31/22 and 12/31/22. Note: $680 MM of export credit agreement deferred till 3/31/22, a SR Credit Facility deferred $70 MM till 12/31/22, and 220 MM euros in new build payments till 3/31/22).Thus if the company has a good operating year in 2022, all of their cash flow, and then some, will be used for debt payments and CapEx for new build ships. I.e. no FCF!

7). Senior management is selling stock. On 12/15/20, Robert Binder, the Vice Chairman and CEO of Oceania Cruise lines (a sub) sold a total of $2.265 MM worth of NCLH stock at prices from $24.32 to $25.04. Recently several other members of senior management have sold at $29.85 to pay for taxes on vested stock.

Given that NCLH’s future earnings power is greatly diminished along with insider selling, I think the real outlook for NCLH is greatly different from what the Robinhood investor thinks! My bet is that senior management knows more than Robinhooder’s!
Tim Dunn profile picture
great points. All of them!
obviously, we all pull in as much information as we can to make good financial decisions. You have definitely added valuable perspective to the article and I am grateful for your contributions.
montagshannon profile picture
Up 25% on CCL. Bought some in March/2020 at 23.77. Bought some more in November/2020 at 17.57. So, I've endured my pain; I'm lettin' this baby run.
@montagshannon Read what bulldog67 wrote....let it sink in.
montagshannon profile picture
@campipilot You're slow to respond. I sold all my CCL for a tidy 30% profit. Never a bad time to take profits.
cruise lines are a great 3-5 year play... they arent going bankrupt and will soar once the respective governments (who also have a financial interest in their restarting) approve. the people will RUN to cruising, there is so much pent up cash just itching to blow into the economy... i bought CCL 3 weeks ago and even though im flat at the moment, its a $50 - $60 a share stock in 3-5 years. that's a 100-150% return. just my biased opinion.
Tim Dunn profile picture
thanks for reading. I expect a chunk of stimulus money will end up as cruise and other vacation reservations.
Debt cruise.com..is the new mode.
Seems like many cruise ships are delaying sailing with further delays predicted months ahead. Its not smooth sailing just a little covid rally.
Is the legion of SA daytraders predicting this sector's demise (along with airlines, or retailers/malls, or restaurants, or heavens knows what flows through their vacuous, addictive, self-destructive minds....) all supposedly disappearing into oblivion, are they still around from last spring? Still wanting to call some of us loony and/or out-of-touch?? Don't see the names anymore ;-/

Repeatedly and specifically, on many RCL, NCLH, CCL and LIND SA articles boards, I talked about how the markets only give you opportunities a few times in your lifetime. You miss them, or purposely neglect them, or you remain shrouded in negativity towards them, you will be worse off for it. Very worse off.

Anyhow, I am still long a lot of CCL from $8-10, LIND $5-$7, NCLH $12-15, and RCL from $25-$30 (including the airlines, select retailers and malls and restaurants). No plans to sell anything over this decade, as most all will get passed down to kids and grandkids. These all, from airlines to ships and planes to restaurants ( and beyond) have more than made up for any pullbacks I have had in the tech stocks that I had bought (or added to) over last spring and early summer. And honestly I am slowly and patiently acquiring more of the tech ones I want to hold for the next decades. The opportunities are out there, right blessed now, even at Dow 32K and 14K Naz, if you can just smack that negative, short-term crap out of your mind.

The best of fortune to us all
Tim Dunn profile picture
@D. Rider
thanks for reading and your comments.
Bought a bunch of RCL at $28 and CCL at $12, RCL has gone way up. Still sitting on most of it
pmheindl profile picture
CDC, Canadian socialist, greenies and many many and others continue with to milk COVID. So many good ans decent people are thrilled to be able to participate in an activity once reserved for the wealthy. Most of the cruises before the shutdown took place concluded with no report of COVID transmission. I was on one. CDC need to back off. There are many health issues that need attention. Much has been learned by this epidemic but it’s time to walk back undue government control. Let the cruises proceed!
I can’t help but think that with the dilution and taking on of debt that their stock valuations have already been at pre COVID levels. I started buying all three early in the COVID dump....too early...but kept buying. I started selling some last month as they had all recovered to what seemed to me the levels of my first sentence. Sentiment seems to be driving them higher. I held on to a good percentage but think rationally it is a pretty good time to exit. However the market is not really rational is it.
Lares Capital profile picture
@Tim Dunn I always enjoy your articles on airlines. However, your analysis is lacking here. You dilution numbers are off because you need to count dillution for convertible bonds. NCLH is about 48% diluted as of today if you only count shares. However, it's over 100% diluted if it converts all its convertible debt. RCL and CCL are better but their real dilution is more than 50%. Their interest expense is almost tripled and they still have zero revenue making things worse daily. Their earning power is somewhere at 20-30% on 2019 revenue.

Secondly, it will take a long time for a cruise line to start up: first they need to get a CDC go ahead (not yet given), then they would need to run a "test" cruise with low capacity to prove they are COVID-free, and only then they will be able to run normal cruises. NCLH estimated a 3 month time span between CDC go ahead and resumption of any cruises. Don't forget that CDC under no political pressure to give green light to cruise companies all of which are registered off-shore, pay almost no US taxes and hire foreign crews. CDC has everything to lose if they give permission early only to face an outbreak on-board. I don't expect a go-ahead till May with resumption of some sailings in September when most of the season will be gone. If anything 2021 may be as bad as 2020. 2022 may still be cash flow negative due to CAPEX as they will be forced to take on deferred ships.

Finally, the biggest long-term issue is that cruising will have to drastically change. You won't be able to pack the same 3000-4000 passengers on a ship like sardines before. Some sort of social distancing is here to stay. COVID won't completely go away - it will mutate and become less deadly. All these mega ships may become unprofitable white elephants, at least for a while.

All in all, cruise lines are in much worse shape than airlines and while they eventually rebound, the enterprise value of all 3 is already at par or higher than it was before CIOVID (no kidding). Their equity is not investable but probably tradeable just like GME and AMC.

As you can see from many comments here, many "investors" do not understand the basics of capital structure - they think if the business rebounds to its 2019 level, the stock price also will. They are welcome to look at AIG and C stock prices to understand the concepts of dilution: they trade at 3% and 15% of their 2008 prices.

No sensible long term investor should touch their equity unless you plan go down with the ship.
Tim Dunn profile picture
@Lares Capital
thanks for your reading, your comments, and for following my work.
The dilution numbers I cited were as of each of the companies' last annual report so all of the new shares dilute further. As you note, there are other instruments like convertible bonds that dilute. Sorry if the dilution number isn't more clear; I think above double digit dilution, we all see that the previous stock prices shouldn't be repeated.
With all due respect, we are seeing more and more companies that have stock prices completely disconnected from traditional measures of valuation and I suspect that gap will grow wider as more money is pumped into the stock market and that will increase by the end of the month as another round of stimulus checks go out.
I suspect the cruise lines might benefit from the inflow of capital into the markets just as they get good news about restarting operations, even if the valuations are not reasonable.
I agree with you and appreciate your comments and discussion.
All cruises to Alaska have not been canceled for 2021 at this point. Senators Murkowski and Sullivan have introduced legislation that would allow (even if temporarily) cruises ships leaving from and returning to Seattle not to have to stop in Canada (usually a 4 hr. stop in Victoria). Should it pass, the season would be salvaged at least partially. It is true however that all cruises leaving from and returning to Vancouver, BC are cancelled.
Tim Dunn profile picture
I was hoping that Congress would waive the requirement for Alaska cruises to stop in Canada for this year. Canada might want to reconsider their approach if there is even a one-time exception.
Alaska needs the cruise revenue. I was there last year during the covid era and it was dead. Beautifully uncongested but they all wanted the hoards of people
@marjact sadly those bills did not pass. congress is set on pushing their progressive agenda before the midterms. i doubt cruising will get any momentum, but hey, im still an owner of CCL and would welcome this bill any day.
Saries profile picture
Found your article very interesting but left me wondering about 1 thing. In your assessment on which cruise line you consider the best to invest, did you take in some residual effects of Covid that might occur. R.C.L. is a fine company, but I believe that they also have the most new and largest ships in the industry. These ships were designed for catering to maximum capacity and profit. Not sure with fears of Covid and other diseases, that bigger is better.
Tim Dunn profile picture
you are right that RCL has alot of new ships coming and they are large ships. All of the companies talked about capex and I feel comfortable that they have all thought through their commitment. There have been some ship retirement and RCL did exit a European joint venture. I think they are focusing on what they need to for the future.

I would presume that they also will fill ships quickly esp. since I expect the first major wave of cruising to be in the winter 21-22 holidays. That is enough time to start aggressively marketing. As noted here, there are lots of die-hard cruisers that are ready to get on a ship again.
Saries profile picture
@Tim Dunn
Really can’t argue with you because you could well be right. I’m looking forward to going on another cruise. Used to own RCL but sold it years ago because I was on their flagship Quantum line and was extremely disappointed. Gorgeous ship but felt like I was in an overcrowded amusement park, where there were lines for everything and things like shows and activities are sold out. A lot of this could be my personal biases against these massive floating adventure park but fear that these behemoths could come to haunt them. Believe containment of any outbreak is easier on a 3500 passenger ship than a 6000 passenger ship.
Tim Dunn profile picture
good perspectives.
For now, the CDC sees both size ships as a similar risk but I am pretty certain that all of the cruise lines are working very hard to show that their largest ships can be safe places for people to gather.
btw, the airlines went through a similar exercise and came out fine WRT the health aspects of travel. I believe the cruise lines will get it right as well.
Nice article, Tim. Very informative and very useful. Hoping the CCL gets going soon. I sure miss our 15 day Hawaiian cruises from San Pedro. Can you spell RELAXATION?
Tim Dunn profile picture
you're not alone!

Lots of people are READY to TRAVEL!
08 Mar. 2021
We cruise and RCL is our cruise line of choice. CCL has a different demographic while RCL is our demographic and more luxurious.
Tim Dunn profile picture
thanks for reading.
CCL does operate multiple brands but their core brand still has a different demographic than RCL's core brand.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.