Why This Cruise Stock Analyst Is Cutting Price Targets Following Carnival Debt Offering

Carnival Corp (NYSE: CCL) completed a much-needed $1 billion debt offering last week, and one Wall Street analyst said Monday that shareholders of Norwegian Cruise Line Holdings Ltd (NYSE: NCLH) and Royal Caribbean Cruises Ltd (NYSE: RCL) should take notice.

The Cruise Stock Analyst: Bank of America analyst Andrew Didora issued the following changes to his price targets for cruise stocks:

• Reiterated Neutral rating for Carnival, cut price target from $22 to $18.
• Reiterated Neutral rating for Norwegian, cut price target from $25 to $20.
• Reiterated Underperform rating for Royal Caribbean, cut price target from $70 to $57.

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The Cruise Stock Takeaways: After an extremely difficult few years, Didora said the cruise stocks now have a different set of financial challenges coming ahead in the form of debt maturities.

Carnival has $1.6 billion of maturities in 2022 and $2.9 billion in 2023. Royal Caribbean has $8.1 billion of principal payments due with $3.7 billion of notes, term loans and revolvers maturing in 2022 and 2023.

Norwegian has $861 million in maturities through the end of 2022 and another $934 million in 2023.

Didora said the fact that Carnival completed its offering even though it has $7.2 billion in total liquidity is telling.

"We think this debt issuance at these levels of liquidity shows the refi needs of the cruise industry in the face of rising interest rates plus concerns around a spike in COVID cases (cruises still test)," Didora said.

Given all the debt risk these cruise stocks are facing in a climate of rising interest rates, he said he cut his price targets based on the assumption that the stocks will likely trade at a discounted earnings multiple relative to their historical averages moving forward.

Benzinga's Take: Investors are still waiting to see when or if the cruise industry returns to its pre-pandemic levels. There may be significant long-term upside among cruise stocks, but at this point there is simply too much financial risk and business uncertainty for investors to feel confident about near-term upside.