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Cruise Stocks Plummet as Coronavirus Hits Global Shores

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The coronavirus outbreak, which has taken the shape of a global pandemic, has not only rattled Wall Street but also other global markets. Notably, investors were sent into overdrive yesterday on apprehensions that coronavirus is truly becoming a worldwide threat with increasing number of cases being reported in South Korea, Italy and Iran. Major indices like the S&P 500, Dow Jones and Nasdaq declined 3.4%, 3.6% and 3.7%, respectively, following the news.

The coronavirus outbreak — which originated in the city of Wuhan on the banks of Yangtze River, between Shanghai and Chongqing — has so far claimed lives of 2,600 people. Moreover, more than 80,000 have been infected by the virus. The infectious nature of the virus has made it a bigger threat. No wonder, the coronavirus has evoked memories of 2002 SARS epidemic, which also spread across the world in a short span of time.

Cruise Stocks Bear the Brunt of Coronavirus

Following the news that coronavirus has spread outside China, major cruise operators like Royal Caribbean Cruises Ltd. (RCL - Free Report) , Carnival Corporation & Plc (CCL - Free Report) and Norwegian Cruise Line Holdings Ltd. (NCLH - Free Report) declined 9%, 9.4% and 9.4%, respectively.

According to 2020 Cruise Industry News Annual Report, China constitutes 7.6% of the global cruise industry. Notably, the outbreak of the COVID-19 virus resulted in the cancellation of a number of voyages in other parts of Asia.

While cruise business from China and Asia fell significantly, bookings for the broader business outside Asia has also softened recently thanks to travel restrictions to contain the spread of the contagion.

Cruise Operators Trim Guidance

Travel warnings and cruise cancellations are starting to take a toll on cruise operators. In fact, the outbreak has persuaded major cruise operators to trim 2020 guidance.

Recently, Royal Caribbean Cruises announced that it has put travel restriction on those who have travelled from, to or through mainland China or Hong Kong. The coronavirus outbreak has compelled the company to cancel 18 cruises in Southeast Asia. The company has also modified several itineraries.

Per management, the Zacks Rank #3 (Hold) company anticipates 2020 earnings to be impacted by nearly 65 cents due to the cancellation of cruises. The company further added that if it has to cancel remaining cruise sailings in Asia through the end of April, it would hurt earnings by another 55 cents. Although coronavirus has primarily impacted Asia, the company has witnessed softer bookings for border business.

Carnival has not only suspended cruise operations from Chinese ports but also cancelled voyages to other parts of Asia. Cancellations are impacting the booking trends, which in turn will also impact 2020 financial results. The Zacks Rank #3 company is currently unable to ascertain the full financial impact on fiscal 2020. In the event that the company has to suspend all its operations in Asia through the end of April, it would hurt fiscal 2020 financial performance by 55 cents-65 cents per share, which includes guest compensation.

Norwegian Cruise Line has canceled, modified or redeployed 40 voyages, which includes 24 voyages on Norwegian Cruise Line, 10 on Oceania Cruises and six on Regent Seven Seas Cruises. The company stated that it will not deploy any vessels in Asia through the end of third-quarter 2020.

The aforementioned factor is expected to impact 2020 adjusted earnings by 75 cents per share. Per management, 2020 results are likely to be materially impacted if apprehensions regarding the coronavirus continue to intensify. For first-quarter 2020, Norwegian Cruise expects adjusted earnings to be nearly 48 cents. Net yield is expected to increase 0.25% at cc. The Zacks Rank #3 company expects net cruise costs (excluding Fuel per Capacity Day) to be 4.5% at cc.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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