Norwegian Cruise Line (NYSE:NCLH) and its cruise brethren are among the most repudiated names against the novel coronavirus backdrop, but there are signs the stormiest seas could be behind Norwegian Cruise Line stock.
Source: Alfonso de Tomas / Shutterstock.com
An 8% gain for the week ending Sept. 30 is a starting point, but there’s plenty more work to be done. Although NCLH stock more than doubled off its March lows, it needs to more than triple to reclaim its pre-pandemic highs.
In the essence of full disclosure, I’m not the biggest fan of cruises or the related equities, but my bias doesn’t belong here. What’s more important is that Wall Street is warming to this downtrodden industry.
Some analysts use the phrase “inflection point” regarding the cruise industry, implying that while the road ahead won’t be bump-free for Norwegian and friends, operators are getting further and further removed from the March/April brink and are positioned to benefit as consumer spending and travel patterns normalize.
NCLH Stock Has Near-Term Catalysts
On the final trading day of September, Norwegian Cruise Line stock jumped 3.3% on above-average volume after reports surfaced that the White House stood in the way of the Centers for Disease Control and Prevention extending in a big way a no-sail order keeping cruise ships docked.
That directive expired on Sept. 30 and CDC Director Robert Redfield reportedly wanted to extend it to February 2021, but the Trump Administration apparently said “No, take an extension to Oct. 31 and like it.” Extending the no-sail order to the end of October isn’t material to Norwegian and its rivals because the operators already agreed to not sail from domestic ports next month.
“We believe cruise executives will be meeting with White House officials to demonstrate (European operations for example) how they can safely return to operations and combat any outbreaks onboard,” said Stifel travel and leisure analyst Steven Wieczynski in a recent note. “We would expect the White House to make a final decision by the end of October.”
Following the Sept. 29 debate, oddsmakers and prediction markets are pricing in diminishing chances of President Donald Trump winning reelection so he’s got plenty of incentive to pull levers that bolster his bid. Delivering clear vision on when the no-sail order will be lifted could be of some assistance because politically pivotal Florida is where many U.S. cruises set sail from.
To put it bluntly, the president has no chance at a second term if he doesn’t win Florida and with the Sunshine State pinched by other travel and leisure job losses, getting cruises running again could help his chances there.
“Bottom line is that with a 60-day window to recommence operations, it wouldn’t surprise us now if there are some North American cruises before year-end,” Wieczynski said.
Set Sail or Drown in Debt
The reason Norwegian, Royal Caribbean (NYSE:RCL) and Carnival (NYSE:CCL) need to get back to the seas is straightforward: These companies issued mountains of debt to raise cash at the height of the Covid-19 pandemic.
For its part, Norwegian had to raise capital because it warned without added cash and drawing on credit revolvers, it could go bankrupt.
The good news is that the operator has the cash to survive well into 2021 should a zero-revenue environment persist. The rub is that it’s burning $160 million a month and has $10.3 billion in debt, or more than double its market capitalization.
Norwegian Cruise Line stock won’t be winning strong balance sheet awards anytime soon, but if the pandemic has taught investors anything, it’s that, despite its lack of financial fitness, NCLH is the type of name that can rally fast and furious with the help of some positive headlines.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.