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Shares of cruise operators pulled back sharply Tuesday, led by the selloff in Carnival Corp.’s stock after the company took advantage of the previous session’s record rally to announce plans for a large stock offering.
Carnival followed Monday’s 39.3% rocket ride by disclosing before Tuesday’s open that it filed for an offering of up to $1.5 billion worth of its stock.
The stock CCL, -12.05% CCL, -6.18% took a 14.0% dive in active afternoon trading, enough to pace the S&P 500 index’s SPX, -0.27% decliners. Trading volume was 99.2 million shares, compared with the full-day average of about 38.9 million shares.
Monday’s rally, which followed surprisingly good news on a COVID-19 vaccine candidate developed by Pfizer Inc. PFE, -1.26% and BioNTech SE BNTX, +4.83%, was the stock’s biggest one-day gain since Carnival went public in July 1987.
Don’t miss: Carnival, Royal Caribbean shares skyrocket as potential for COVID-19 vaccine sparks record rallies.
Based on current stock prices, the $1.5 billion “at-the-market” equity offering program could represent up to 90.53 million shares, which could boost the shares outstanding by up to 12.6%. The offering comes on the heels of a $1 billion equity offering that was completed on Oct. 30.
The S&P 500’s second biggest decliner was Norwegian Cruise Line Holdings Ltd.’s stock NCLH, -5.16%, which sank 8.0%, a day after soaring 26.8%.
After Monday’s closing bell, Norwegian reported that it swung to a wider-than-expected third-quarter loss, and that revenue shrunk more than forecast.
Meanwhile, the company said demand continued for far-off cruises, starting in the second half of 2021 and beyond, as reported by MarketWatch’s Claudia Assis.
Also read: Norwegian Cruise Line misses Q3 views, pins hopes on far-off demand.
“While nothing stands out in [Norwegian’s] release as being overly concerning, given the continued opaque language around North America start-up dates, investors could start to rethink how quickly the industry could get back on firm footing,” analyst Steven Wieczynski at Stifel Nicolaus wrote in a note to clients.
He reiterated his buy rating on Norwegian’s stock and his $17 stock price target.
Elsewhere, Royal Caribbean Group RCL, -2.22% shares slumped 4.0%, after hiking up 28.8% on Monday.
UBS analyst Robin Farley also seemed to temper enthusiasm regarding the outlook for cruise stocks if a highly effective vaccine became widely available. He said if enterprise value were to return to pre-COVID-19 levels, stock prices would still remain below pre-COVID prices given the sharp increases in the companies’ share counts following dilutive equity offerings.
For example, not including the share offering announced Tuesday, Farley said Carnival’s share count has increased by more than 37% since the first confirmed case of COVID-19 on Jan. 17, when counting convertibles as equity.
Norwegian’s share count has increased by about 84% over the same time, Farley said, and Royal Caribbean’s shares outstanding is up by roughly 17%.
Farley also said even with a vaccine, it could still take more than six months before a cruise restart. “In that case, there could be further reduction in a ‘recovered’ equity value,” Farley wrote in a note to clients.
Carnival’s stock has tumbled 67.4% year to date, Norwegian shares have shed 66.1% and Royal Caribbean shares have dropped 45.8%. In comparison, the S&P 500 has gained 9.6% this year.
