Morgan Stanley Slashes Estimates on Cruise Lines 25-30% Amid Covid-19 Impact

Morgan Stanley analyst Jamie Rollo cut EPS estimates on cruise lines by 25-30% amid the Covid-19 outbreak. The analyst cited channel checks and analysis of prior incidents. Numbers were cut on Carnival Corp. (NYSE: CCL), Norwegian Cruise Line (NYSE: NCLH), and Royal Caribbean Cruises (NYSE: RCL)

"The cruise industry has featured extensively and negatively in global media in recent weeks, with the quarantine of the Diamond Princess suggesting a high disease transmission rate on ships, and coinciding with the industry's peak booking period," Rollo commented. "We see first order risks (lost revenue from cancelled Asian cruises), second order risks (customers elsewhere delaying booking or even not cruising at all), and third order risks (empty Asian ships deployed to other markets and compounding a high capacity growth environment; working capital outflows, dividend and leverage risk)."

The firm's checks suggest double-digit booking volume drops in the US and Europe in recent weeks, with elevated cancellations and discounts. Agents expect that more price cuts will be forthcoming.

Morgan Stanley's bear case points to an even worse scenario for the cruise companies, with EPS dropping 50-60%. "Our bear case models a 8-10% yield hit in the US and Europe, and a 40-50% hit in Asia, implying a 50-60% EPS downgrade," Rollo added.

In addition to lowering estimates, the firm cut its price target on CCL to $47 (from $49), RCL to $135 (from $140), and NCLH to $57 (from $59).

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