The U.S. ISM manufacturing PMI has been in a downtrend for the last year, and this week it fell below the key 50 level for the first time since August 2016. In this week’s piece we examine the implications for our coverage by looking at industry stock returns over the last 25 years in relation to when PMI drops below 50 as well as when PMI eventually bottoms.
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Hurricane Dorian has continued to impact several voyages and we are lowering our estimates. For now, it seems the financial impact and potential prolonged impact may not be as bad as it could have been, but that’s still to be fully seen as the situation remains fluid. Port Miami, Everglades, and Canaveral closed on Saturday, but Miami and Everglades just re-opened. This means that cruise lines have had to extend sailings, cancel sailings, and shorten sailings, which results in refunds/credits paid out to guests, as well as compensation for other travel arrangements. The lost revenue from the cancellations and itinerary changes has the biggest negative impact to C-3Q results. We are not expecting a prolonged impact to the industry as experienced during the 2017 hurricane season because 1) Puerto Rico was a key home port, unlike the Bahamas, 2) there are other alternate destinations, if any ports/islands experienced meaningful lasting damage, and the eye of the storm also missed the Nassau port, and 3) the 2017 season also faced a series of back-to-back storms, which we can only hope doesn’t happen again.
RCL traded down 2% on Thursday (07/25/19) after what we thought was a strong and reassuring earnings report. In this week’s piece we discuss our thoughts with a few charts showing 1) investor apathy on cruise stocks, we think, 2) how earnings have been resilient in prior years despite headwinds, and why that could be the case again now, and 3) why short-term investors feel the near-term setup is still tough, but why we think it could improve.
In this week’s piece we discuss five topics: 1) poor freight trends as it relates to our coverage; 2) softer U.S. GGR trends in June; 3) VAC’s valuation is near an all-time low versus its prior parent company MAR; 4) recently disclosed buybacks from CCL, and our analysis on why additional buybacks could be limited for at least a couple years; and 5) our thoughts on a possible sale/leaseback transaction at MGM for Bellagio and MGM Grand, and our analysis on what we think this could be worth to the stock. Please click the link above for the full report.
For our Weekly Sho we've recorded a 20-minute video with 36 slides highlighting our current views as we head into another earnings season. The cruise line section begins at 4:03, the lodging section begins at 9:00, and the gaming section begins at 15:40. Enjoy the rest of your weekend!
In this week’s piece we discuss cruise line capacity growth into 2020. The growth rate of gross supply (i.e. total cruise ship deliveries) is accelerating modestly into 2020 and we’ll discuss with a couple charts.
We’ve fought this call for too long. We think downside from current levels is limited, but we struggle to justify meaningful upside in the next twelve months. The stock is cheap, but so are other cruise line stocks with better fundamental stories, and valuation alone feels like a weak thesis. This is a tough downgrade with the stock trading at a 52-week low, historically low valuations, and following multiple other recent sell-side downgrades, but we think this is the right decision. With this downgrade, we are lowering our sector weighting on the group to Market Weight, as we can no longer recommend buying the entire group. We do, however, remain positive on RCL and NCLH, as we think CCL’s issues are more idiosyncratic.
CCL surprisingly reported F2Q results this morning (6/20/19) and the guidance and commentary were disappointing. Our initial take is here. The stock was down 13% at one point before rallying some and closing down 8%.
CCL surprised everyone and reported earnings today instead of what was originally targeted for next week. The quarter wasn’t terrible, but the guidance was. CCL lowered FY constant currency net yield guidance by 100bp when the debate from investors was whether they would raise or not. CCL said they lowered the yield guidance primarily because of continued headwinds from the Continental European brands in 2H19. The stock seems likely to open down meaningfully again, after down 8% in each of the last four quarterly prints. We thought this could be the print where we start to see things change, but we were wrong. Fool me once, shame on you, fool me five times? Shame on us.
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