JP Morgan: 2 cruise line actions to bet on (and 1 to avoid)
The coronavirus pandemic crisis shows no signs of reduction, even with a vaccine on the market. We still face severe policies of social blockade, with a number of states (such as California, Minnesota and Michigan) imposing even tougher restrictions in this round than before. It is a severe blow to the leisure industry that is still spinning from one of the hardest years in memory. The difficulties facing restaurants are increasingly pressing, but for the cruise industry, the crown has been a perfect storm. Before the pandemic, the cruise industry – which did business worth $ 150 billion a year – was expected to carry 32 million passengers by 2020. Everything is gone now. During the summer, the industry was in turmoil when more than 3,000 COVID cases were linked to 123 separate cruise ships and resulted in 34 deaths. After such a difficult year, it is useful to take a step back and take a snapshot of the state of the industry. JPMorgan analyst Brandt Montour did just that, in a comprehensive analysis of the cruise industry in general and the three cruise line giants in particular. Looking ahead, traders will face a lot of headwinds when restarting / ramping up operations in 2Q3Q21, but the significant sequential improvement in revenue / cash flows from that period is likely to dominate the narrative and we believe investors will continue to watch short. by 2022, characterized by a fully increased capacity, almost complete occupations and a manageable price pressure so far, “said Montour. In this context, Montour has chosen two actions that are worth the risk and one that investors should Avoid it for the time being.Using the TipRanks stock comparison tool, I aligned the three side by side to get the short-term hold for these cruise line players. Royal Caribbean (RCL) Second Royal Caribbean’s largest cruise line remains a top choice for Montour and his company, and has put its resources into meeting the pandemic’s challenges, consolidating liquidity and simplifying and modernizing its fleet. While the company resumed several cruises and even delivered a new ship, the Silver Moon, most operations remain suspended.For Q3, the company reported earnings. Adjusted prices of – $ 5.62, below the consensus of – $ 5.17. Management estimates that cash burns range from $ 250 million to $ 290 million a month. To combat this, RCL reported that it has $ 3.7 billion in cash at the end of September. It included $ 3 billion in cash at hand, along with $ 700 million available through a credit facility. Total liquidity at the end of the third quarter decreased by more than 9% compared to the end of the second quarter. Since the end of the third quarter, RCL has added more than $ 1 billion to its cash position through a $ 500 million senior banknote issue and a sale of shares, putting another 8.33 on the market. million shares at $ 60 each. , Writes Montour, „[We] are the most constructive on the OW rated RCL, which we believe has the most compelling set of demand drivers … its extensive investment in new hardware at higher prices, as well as consumer data, have all set RCL to outperform the industry in in terms of revenue, margins and longer-term ROIC. ”Montour maintains its overweight rating (ie Buy) with a target price of 91 USD. This figure represents a 30% growth potential for 2021. (To follow Montour’s track record, click here) Does the rest of the street agree? As it turns out, the analyst’s consensus is more of a mixed bag. 4 purchase ratings and 6 withholdings give RCL moderate purchase status. Meanwhile, the stock sells for $ 69.58 per share, slightly above the average target price of $ 68.22. (See RCL stock analysis on TipRanks) Norwegian Cruise Line (NCLH) With a market capacity of $ 7.45 billion and a fleet of 28 ships, Norwegian Cruise Line has found its size relatively smaller as an advantage in this pandemic period. With a smaller and newer fleet, overall costs, especially ship maintenance, were lower. These advantages do not mean that the company avoided the storm. Earlier this month, the Norwegian announced an extension of its travel suspension policy, covering all scheduled travel from 1 January 2021 to 28 February 2021, plus selected travel in March 2021. These cancellations take place as Norwegian revenue declines – In the third quarter, the peak was just $ 6.5 million, compared to $ 1.9 billion last quarter. The company also reported a $ 150 million cash burn per month. In order to combat the burning of cash and minimum incomes, the Norwegian took measures to improve liquidity in November and December. The company closed $ 850 million in senior banknotes, at 5.875% and maturing in 2026, in November, and earlier this month closed a joint stock offer. The stock offering totaled 40 million shares at $ 20.80 per share. Together, the two bids raised more than $ 1.6 billion in new capital. On a more positive note, the Norwegian is preparing for a possible resumption of full services. On December 7, the company announced a partnership with AtmosAir Solutions to install air purification systems on all 28 ships in its current fleet, using known filtration technology to defeat the coronavirus. Montour, JPM, emphasizes these advantages in the Norwegian analysis, and summarizes the bottom line: “This, combined with a relatively newer, state-of-the-art, brand / ship footprint, would generally lead us to believe that it is in a good position to outperform in terms of rising prices, although its demographics are likely to outperform older customers, it will remain an obstacle until 2021. Finally, NCLH is a high-quality asset in the cruise industry. with a larger beta for a cruise recovery and should outperform as the industry returns and investors look to the risk spectrum. “Montour gives the stock a $ 30 price target and an overweight rating (i.e. Buy). Its target is a 27% increase over the one-year period. The Norwegian is another cruise line with a moderate purchase by analyst consensus. This rating is based on 4 Purchases, 4 Holdings and 1 Sale set in the last months. Like RCL above, the stock price here, $ 23.55, is currently higher than the average target price, $ 23.22. (See NCLH stock analysis on TipRanks) Carnival Corporation (CCL) Last time, Carnival, is the largest cruise line in the world, with a market capacity of $ 23.25 billion, over 100 ships on its brands and over 700 ports of destination. In normal times, this huge footprint gave the company an advantage; now, however, it has become an expensive debt. This emerges from the company’s fiscal burnings in the third quarter, which approached $ 770 million. Like other major cruise companies, Carnival has extended its trip cancellation or, in company terms, a “break in operations.” The Cunard line, one of the Carnival’s brands, canceled trips on Queen Mary 2 and Queen Elizabeth until early June next year. Carnival also canceled February operations at the ports of Miami, Galveston and Port Canaveral and pushed back the inaugural voyage of the new Mardi Gras until the end of April 2021. These measures were taken in accordance with coronavirus restrictions. and revenues are suffering profound losses this year. The stock fell by 60% year-on-year, despite recent price rallies in late October. Revenue fell to just $ 31 million in the third fiscal quarter, reported in September. Carnival reported a loss of nearly $ 3 billion in that quarter. The company ended the third quarter with more than $ 8 billion in cash available, an impressive resource to deal with the difficult situation. This combination of strength and weakness led Montour to place a Neutral (i.e. Hold) rating on CCL shares. However, its $ 25 price target suggests a possible 23% increase. In comments about Carnival, Montour wrote: “[We] I believe that part of the same relative net return that we saw in 2018-2019, due to its size, will probably become the most important on the other side of this crisis … However, given the relative reduction in CCL shares , a lower price increase before the crisis, and geographical diversification, we see it as the company with the least disadvantage in the next few months and we are not surprised by its recent performance. We believe this will be reversed in 2H21. “Overall, Carnival has a Hold rating by analyst consensus. This rating is based on 10 reviews, broken down to 1 Buy, 8 Holdings and 1 Sell. The stock sells for $ 20.28, and its average price of $ 18.86 implies a potential disadvantage of ~ 7%. 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