The pandemic-ravaged cruise industry should surpass the dreary outlook of investors fearing a global recession, according to an equities analyst who covers the sector.
Assia Georgieva of Infinity Research expects the sector and its listed owners to instead sail fair seas on the backs of a tight job market and pent-up demand.
“Consumer discretionary stocks are most vulnerable when inflationary and recessionary concerns are in the news,” she told TradeWinds.
“Yet, the key driver to cruise bookings from a macro-economic perspective has been job stability.”
The US unemployment rate is currently at 3.6% as employers face worker shortages.
“With a very tight job market and pent-up demand, I would expect that the cruise lines outperform expectations by investor gurus, including the very negative report out of Morgan Stanley last week,” she said.
Georgieva was referring to a Thursday note by Morgan Stanley in which analyst Jamie Rollo said that Carnival Corp’s shares could fall to $0 if a recession hit, CNN reported.
“If there is a demand shock that causes trip cancellations or weak bookings … liquidity could quickly shrink,” Rollo wrote.
Rollo’s bleak outlook caused Carnival shares to fall by 15% on Thursday, while stocks for peers Royal Caribbean Group and Norwegian Cruise Line Holdings plummeted 10%.
On Tuesday, the shares went in the opposite direction as Norwegian’s stock jumped 10%, while Carnival’s shares gained 6.4% and Royal Caribbean’s equity edged up 2.9%.
Though optimistic about cruise shares, Georgieva could not pinpoint why they are rising and falling, loosely speculating that Tuesday’s gains were from increased marketing over the July 4th weekend.
“I would attribute that more to investor psychology over the long weekend,” she said.
“Again, there is no explanation, based on fundamentals, that can explain these wild swings.”
By early afternoon on Wednesday, Norwegian’s shares were down by 9.9%, while those for Carnival and Royal Caribbean had fallen more than 6%.
Despite her upbeat outlook, Georgieva acknowledged that cruise shares took a beating last month as a result of pandemic jitters.
“When looking on a month-long view, you’ll notice that the stocks are still down, as they got battered the second week of June,” Georgieva said.
“All cruise companies have seen a slow-down in demand, but that has been after an extended wave season that was originally disrupted by Omicron in January.”
