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Shares of cruise operators rose Wednesday, as investors shrugged off the latest update on the sector’s exposure to COVID-19, the coronavirus that was first identified in late 2019 in Wuhan, China.
Carnival Corp. CCL, +1.67% told investors that it could face a per-share earnings impact of 55 cents to 65 cents in fiscal 2020 if all operations are suspended in Asia through the end of April. While that has not come to pass and may be averted, the cruise line said there will be a material impact on the business due to suspended cruises in Chinese ports, cancellations in other parts of Asia, and the impact on bookings, which the company said is determined by the length of time that an event influences travel.
Carnival’s Holland America Line confirmed Wednesday that the Westerdam, which has 1,455 passengers and 802 crew members, is expected to dock in Sihanoukville, Cambodia, on Thursday. The ship, which was scheduled to disembark Saturday in Yokohama, Japan, had been turned away from four other countries over virus concerns, according to Reuters. A company spokesperson said there are no suspected cases of the virus on board.
Another cruise ship, the Diamond Princess, that docked in Yokohama earlier this month, has reported upward of 175 infections from COVID-19.
Carnival shares dipped briefly on the news, before recovering to trade up 2.4% after reports that the pace of infection appears to be slowing. Shares of Royal Caribbean Cruises Ltd. RCL, +3.10% were up 3.4% and Norwegian Cruise Line Holdings Ltd. NCLH, +2.05% were up 2.1%.
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The stocks are still in the red for the year to date, however, with Carnival down 13%, Royal Caribbean down 12% and Norwegian down 8%. The S&P 500 SPX, +0.53% has gained 4% in the year so far, while the Dow Jones Industrial Average DJIA, +0.72% has added 3%.
UBS analysts sought to quantify the effect of the virus on cruise companies in a note looking at sensitivity to changes in yield.
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“From our channel checks for U.S. cruise sales, we hear calls and bookings are down in the low double digits and continuing to fall,” analysts Robin Farley and Arpine Kocharayan wrote in a note to clients. “Cancellations are also high, though lines with nonrefundable terms on their primary fares are doing better than those that don’t sell as much nonrefundable.”
For Carnival, the analysts estimate that every 1% decline in yield is equal to 24 cents of full-year EPS and every 0.5% decline in capacity is equal to 11 cents. The analysts are assuming that net cruise costs ex-fuel remain roughly fixed.
Carnival’s China deployments are about 5% for both the first quarter and full year, said the analysts. The company has about 12% of its total deployment in the Asia Pacific region in 2020.
For Royal Caribbean, the analysts calculate that a 1% decline in yield is equal to 42 cents of full-year EPS and a 0.5% decline in capacity is equal to 20 cents. Royal Caribbean’s total deployment in Asia is about 16% of total capacity in 2020, up from 15% in 2019.
For Norwegian, the analysts estimate that a 1% decline in yield is equal to 25 cents of full-year EPS while a 0.5% decline in capacity is equal to 11 cents. Norwegian is the least exposed to China and the Asia Pacific markets among peers, with less than 1% exposure to China deployments. However, the company recently canceled all sailings for the Spirit from April to December. That ship was moving to Asia to source North Americans, said the analysts.
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Instinet analysts said the stocks should find a bottom as soon as 2020 EPS estimates have come in enough to reflect a reasonable approximation of the impact of the virus: “Cruise stocks should recover when the coronavirus story is off CNN’s and Fox’s Top 5 headlines,” analysts led by Harry Curtis wrote in a note on Tuesday. “On non-coronavirus EPS, we believe the stocks are excellent values. Patient investors should be evaluating NCLH and RCL during this crisis.”
Instinet rates the latter stocks a buy, but has a neutral rating on Carnival.
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