Norwegian Cruise Line breaks hearts, but not wallets
It’s time to clear another month of bookings from Norwegian Cruise Line Holdings‘ (NYSE: NCLH) Pounds: The country’s third-largest cruise operator has canceled all crossings until the end of April.
If Norwegian Cruise Line Holdings sails again in May – and that’s a big “if” – it will mark 414 days since its last embarkation. Norwegians and great peers Carnival (NYSE: CCL)(NYSE: CUK) and Royal Caribbean (NYSE: RCL) meet exacting guidelines from the Centers for Disease Control and Prevention to resume operations. Cancellations are understandably necessary, but still disappointing for many passengers. A growing number of future cruise lines are asking for cash refunds instead of improved credit on future sailings.
The shareholders are doing very well. The stock fell in the first weeks of 2020 when it became clear the pandemic was going to rock the global travel industry. Still, if you had purchased at the end of March 12 last year – the last day a Norwegian Cruise Line ship boarded with paying passengers – you’d be sitting pretty right now. The stock has more than doubled since, up 162%. The disconnect between business and stock is bizarre.
Bulls will concede that Norwegian Cruise Line Holdings is in a more fragile shape than it was when it suspended cruises last year. The cruise line’s operator initially denied four weeks of cruises, expecting to be back to sea by mid-April 2020. Still, the Bulls could argue that using last March as a starting line is not fair.
Norwegian Cruise Line fell from late February to mid-March. From the start of 2020 until the close on Tuesday, Jan.19, 2021, the stock has fallen 57%. Bulls will argue that a company lose more than half of its value since the end of 2019 is overreacting, but they are wrong.
Shares may have fallen sharply since the end of 2019, but thanks to new shares issued by Norwegian Cruise Line and new debt incurred, its enterprise value fell only 9%, from 18.3 billion dollars to 16.6 billion dollars. In short, investors believe the stock deserves to lose less than 10% of its enterprise value, despite having been bankrupt for over a year. He is the distant bronze medalist in an industry that has suffered big blows.
Things are more difficult than the recently supported actions suggest. Industry is contracting. Carnival unloaded several of its less efficient ships last year. This week, Royal Caribbean announced that it is selling its Azamara business – along with the line’s three-vessel fleet – in a $ 201 million transaction that will still see it suffer a one-time non-monetary depreciation of 170. millions of dollars.
Taking a step back now makes sense. When the cruise ships return to sea at some point later this year, we’ll still be in a world recession. Norwegian Cruise Line, Royal Caribbean and Carnival will still need to woo passengers and invest in applying a heavy coat of marketing paint to restore cruise appeal.
Delaying departures until May gives Norwegian Cruise Line the time it has left with its current cash flow. Still, the company needs to do more in this lull than just break the hearts of passengers if it is to keep investors around.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.