Why Carnival Corporation and Norwegian Cruise Line shares erupted today

What happened

As the delta variant of the coronavirus breaks out, the United States recorded more than 92,700 new cases of Covid-19 yesterday. Yet, cruise line stocks are now … on the rise?

Yes, believe it or not. As trading day draws to a close here at 3:45 p.m. EDT, shares of Carnival Society (NYSE: CCL) shares are up 6.9% from yesterday’s close, and rival Norwegian Cruise Line Holdings (NYSE: NCLH) is just behind with a gain of 6.3%.

However, investors in these two cruise line stocks may owe their good fortune to a third party: Royal Caribbean (NYSE: RCL).

So what

In case you haven’t heard, Royal Caribbean released its fiscal second quarter results yesterday. The news was not terrible – Royal Caribbean lost $ 5.29 per share in the quarter. He also predicted another loss in the third quarter and a loss for the full year.

But here’s the problem: During the conference call with analysts on the company’s earnings, Royal Caribbean CFO Jason Liberty pointed out that 29 of Royal Caribbean’s 68 ships were back in the water, and that seven more would resume cruise operations by the end of this month. By the end of this year, Royal Caribbean expects 85% of its fleet to be back up and running – and has predicted the company will have positive cash flow again “in about six months,” CruiseIndustryNews reports .com.

Now what

The caveats abound. On the one hand, what is true for Royal Caribbean may not be true for Carnival or Norwegian Cruise. Moreover, Liberty did not say precisely how many Royal Caribbean cash flow will produce and has not promised to be positive free cash flow.

In fact, with Royal Caribbean expecting to spend $ 900 million on capital investments over the remainder of this year, I would say the company is unlikely to have positive free cash flow. Still, it’s baby steps.

On an operational basis, at least, Royal Caribbean will stop burning money by early 2022 at the latest. For now, that seems like good news to encourage investors in Royal Caribbean stocks – as well as Carnival and Norwegian Cruise Line Holdings.