Cruise stocks, including Carnival (CCL) – Get Carnival Corporation Report, Royal Caribbean Cruises (RCL) – Get Royal Caribbean Group Report and Norwegian Cruise Line (NCLH) – Get Norwegian Cruise Line Holdings Ltd. Report soared Monday amid optimism that the omicron Covid variant won’t be so bad after all.
White House Chief Medical Adviser Anthony Fauci said Sunday that initial indications about the severity of omicron are “a bit encouraging.”
He told CNN, “Clearly, in South Africa, omicron has a transmission advantage.” But “although it’s too early to make any definitive statements about it, thus far it does not look like there’s a great degree of severity to it.”
Carnival recently traded at $18.89, up 9.8%; Royal Caribbean at $73.80, up 11%; and Norwegian Cruise at $20.45, up 12%. The S&P 500 was 1.58% higher.
Morningstar analyst Jaime Katz puts fair value at $26.50 for Carnival.
“On the yield side, we expect Carnival to see some pricing pressure as future cruise credits are redeemed in the year ahead, a headwind partially mitigated by a measured return of capacity,” she wrote in October.
“And on the cost side, higher spend to implement tighter cleanliness and health protocols could initially inflate spending.
“Aggravating profits will be the fact that the entire fleet will likely have staggered reintroductions, crimping profitability over the 2021-22 time frame, ceding scale benefits.
“For reference, as COVID-19 continues to wane, 61% of capacity (50 ships) is expected to be deployed by November.
“These concerns, in turn, should lead to average returns on invested capital, including goodwill, that are set to languish below our 10.4% weighted average cost of capital estimate until 2028.”