Net cruise bookings around zero now, Wells Fargo estimates

Cancellations are concentrated in second-quarter sailings, triggered by full payment due 90 days prior to sailing, with approximately 50% of cancellations immediately rebooked for sailngs three to four months out, or later, according to the brokerage’s assessment.

Q2 pricing pressure

Most pricing pressure is on Q2, with bundling incentives, rather than discounts, prevalent beyond then.

Minimal 2021 impact to date

2021 cruises are ‘minimally impacted to date,’ according to Wells Fargo.

The brokerage hosted small investor group meetings with Carnival Corp., Royal Caribbean, Norwegian Cruise Line Holdings and Lindblad Expeditions Holdings on Thursday.

Apart from Lindblad, cancellations are skewing to older travelers, not unexpected given that coronavirus mortality rates are highest in individuals over 60.

Eight-week cycle per market

Citing past outbreaks that impacted travel, Wells Fargo projects an eight-week peak for coronavirus in each market.

This scenario implies manageable profit and loss impact through Q1 2021 and adequate balance sheet liquidity for the major companies in the brokerage’s coverage.

‘We believe visibility on COVID-19 peak global impact could materialize over approximately weeks,’ Wells Fargo analyst Tim Conder said. China appears peaking after eight weeks, with North America and Europe still having eight weeks to cycle through.

‘Stocks will likely bottom before this. We feel cruise names could see a rotational relative bounce, especially if Feb. 29-March 1 weekend new COVID-19 cases moderate, before a final washout over next four weeks,’ Conder said.

Wells Fargo recommended investors begin legging into positions now and consider incorporating derivatives, given option premiums. The brokerage prefers RCL as ‘best in class’ of the cruise stocks, followed by NCLH and then CCL, due to its company-specific issues with the virus.

Cruise shares likely haven't bottomed yet

For the past week, since Feb. 21, cruise stocks have significantly underperformed compared to the Standard & Poor’s 500 Stock Index, with CCL down 23.6%, NCLH off 26% and RCL down 27.3%, versus a 10.8% decline in the SPX. On Thursday, cruise stocks closed 5% to 9% off of lows, while SPX closed at lows.

Wells Fargo expects more downside as coronavirus cases increase in Europe and North America.

Friday in New York, RCL opened at $73.92, CCL at $31.23, NCLH at $33.28 and LIND at $11.98. In the past 52 weeks, RCL has ranged from $70.50 to $135.32, CCL from $30.19 to $58.68, NCLH from $33.17 to $59.78 and LIND from $11.52 to $19.29.