Carnival, Norwegian, Royal Caribbean Cruise on Barclays Upgrade

A Barclays analyst says the worst for the cruise sector "is in the past" and upgraded Carnival, Norwegian and Royal Caribbean to overweight.
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Carnival  (CCL) - Get Report, Norwegian Cruise Line  (NCLH) - Get Report, and Royal Caribbean  (RCL) - Get Report were higher Friday after a Barclays analyst upgraded the cruise-ship operators to overweight from equal weight and raised her price targets.

Analyst Felicia Hendrix raised her target prices to $31 from $18 on Carnival, to $26 from $17 on Norwegian, and to $68 from $50 on Royal Caribbean. 

Carnival shares at last check were up 5.1% to $14.44, Norwegian was 8.9% higher at $15.92, and Royal Caribbean added 4.7% to $62.81.

"[We] are nearing an inflection point in cruise," Hendrix said in a note to clients. 

"While we may be early, we believe the risk/reward is the most attractive in our coverage universe. Investors who have previously written off cruise stocks should begin to revisit their models."

The cruise industry has been battered by the coronavirus pandemic, with ships being ravaged by onboard outbreaks that resulted in numerous deaths and, ultimately, a no-sail order from the Centers for Disease Control. That order is scheduled to end on Sept. 30.

"While chances are high ... that the CDC extends the date again (likely into the fourth quarter)," Hendrix said, "...the comments from the agency will be positive and could signal a near-term return to cruise, which could be a catalyst for the shares."

While a removal or lapse of the no-sail order would be the most positive outcome, the analyst said, a fourth-quarter start date, "combined with positive language bodes well for sentiment, as it removes uncertainty and, importantly, concerns about liquidity."

Hendrix said much has changed since she downgraded the cruise sector in June. Cruises have started up in Germany and Italy with no incidents, and bookings data from each of the cruise companies have indicated pent-up demand.

In addition, she said, a health panel formed by Royal Caribbean and Norwegian Cruise Line unveiled a 74-point plan that the companies hoped would lead to U.S. cruises to resume.

Hendrix also said Carnival said it would dispose of 18 ships, "which combined with near-term industrywide ship-delivery delays allows the industry to recover over the next several years against a slower supplyg-rowth backdrop."

"Further, covid-19 testing has become more pervasive and news flow on a vaccine has become more positive," she said. 

"Even if the CDC extends the no-sail date farther than expected, we believe the worst is in the past for the sector."