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Coronavirus outbreak may keep cruise line industry underwater until 2021: expert

Brian Sozzi
Editor-at-Large

The financials of the major cruise lines may stay underwater into 2021 as the coronavirus outbreak makes people hesitant to sail away to remote lands for their vacation.

“It is too soon to say this will be as bad as it gets. We are not quite sure what the long-term ramifications are going to be,” said The Points Guy travel editor Melanie Lieberman on Yahoo Finance’s The First Trade. “I think we are seeing ripple effects in cruise markets all across the world. There could be some very long-term effects.”

Cruise line operators Norwegian Cruise Line, Carnival Cruise Line and Royal Caribbean have seen their stocks slammed in the wake of the coronavirus epidemic. All three stocks are down an average of 15% over the path month, per Yahoo Finance Premium data.

And selloffs are very justified.

For starters, the companies are disclosing major profit hits as the coronavirus upends itineraries to China and those to other key destinations. Norwegian Cruise Line said Thursday it has canceled all its trips to Asia through the third quarter, which will hit earnings to the tune of 75 cents a share.

Royal Caribbean warned a week ago it has canceled 18 itineraries to Southeast Asia. The decision will shave off an astounding 65 cents a share in full year 2020 earnings. Royal Caribbean added that if it were to cancel all its remaining trips to Asia through April, earnings would be reduced by another 55 cents a share.

So in light of these earnings haircuts, it make sense the stock would need to be re-rated by the market.

Further pressuring the cruise stocks are just the bad headlines right now that could impact consumer demand into next year. These headlines are weighing on the multiples the stocks fetch in the market.

The quarantined cruise ship Diamond Princess is anchored in the Yokohama Port Sunday, Feb. 9, 2020. Japan on Saturday reported three more cases of the coronavirus aboard the Diamond Princess for a total of 64 . There are 3,700 passengers and crew on the Diamond Princess who must remain on board for 14 days. (AP Photo/Eugene Hoshiko)

The main headline stems from the situation with Diamond Princess. Two people on board the quarantined Diamond Princess have died from the coronavirus. A total of 634 people on the ship — which has been docked in Tokyo since Feb. 3 — have contracted the coronavirus.

“We believe until investors get a better sense of the ultimate impact this “noise” will have on the business, they will continue to tread water around these names,” cautioned analysts at Stifel in a new note to clients.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET or on Verizon FIOS channel 604. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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