Credit Suisse initiates Royal Caribbean, Norwegian Cruise Lines at outperform

On Thursday, Credit Suisse analysts led by Benjamin Chaiken initiated coverage of the cruise line industry with an outperform rating of Royal Caribbean and Norwegian Cruise Lines, and a neutral rating of Carnival Corporation. The firm thinks that while COVID-19 will likely have "a lasting impact on the cruise industry, the unmatched value proposition of the product will be a driving force behind a recovery". The Final Round panel discusses the sector’s outlook.

Video transcript

- Let's get to our call of the day right now. It's a bullish call from Credit Suisse, initiating coverage on cruises, yes, cruises, those companies that are down 75%, 80%, that were hotbeds of coronavirus. Early headlines very negative. These stocks have been just hammered. Today, we've got Royal Caribbean with an outperform rating, $67 price target. Norwegian Cruise Line, outperform rating, and a $21 price target. Just pulling up Norwegian here right now. It's about $14, up almost 10%.

So all is not terrible for cruises if you read this note. Rick Newman, what did you think?

RICK NEWMAN: This is so crazy. I love it. People are going to be cruising again. It's going to go back to normal. I sat here thinking, man, come on, you got to be kidding me? Cruise lines? But their argument is these companies have enough cash to last into next year-- that's with no revenue-- and that their customer base is pretty loyal.

It's a good value proposition. Cruising is cheaper than a lot of other types of vacations. You get a lot for the money. And I sort of scratched my head, and sat here thinking about it, and thought, I think I'll actually buy that. Now, obviously, if we ever get a vaccine for the coronavirus, that would be the best thing for the cruise industry and many others. But I think their premise here is maybe not a vaccine. But the cruise lines will find people to get people back on the boats anyway. I think it'll happen.

- So Akiko or Melody, just raise your hand. Have either of you been on a cruise? I can see you both. No, oh, and Miles and I haven't been on a cruise either. Wait, Rick Newman, have you been on a cruise?

RICK NEWMAN: We're such elitists? I mean, we're out of touch with the people. Come on [INAUDIBLE]. I've never been on a cruise. I've never wanted to go on a cruise.

- Oh, wait, [INAUDIBLE] has been on a cruise.

RICK NEWMAN: I just like the water.

- [INAUDIBLE]. You've been here. We discussed this in the 3:00 o'clock. Look, the cruising, it's not as old as you think. 42-year-olds are going. 55% of people that could have gotten their money back because they were canceled because of COVID actually took a credit. So this idea of repeat business, it's a movable asset. You can go around, go to California, the hot hotspots in Florida. You've been on one. What do you think of this notion? Did you get on?

- I've been on two. One was company sponsored, did a sales competition way back in the day. It was kind of fun because I was with my colleagues. And they're a lot of fun. Another one, it might have been the company I was with. But I went to the Bahamas. Did not enjoy it that much. The whole experience just-- maybe I should have gone Royal Caribbean instead of one of the others.

But I was thinking, when this whole thing broke out a couple of months ago, I would do Alaska when the prices come down. I've always wanted to do that. I might do Norway, something like that. But I'm not going to go to the Bahamas.

- So Akiko, you've never been. They need new customers. What do you think--

- No. No.

- You're not going [INAUDIBLE].

- Well, also--

- [INAUDIBLE] down. They're ripe for the picking. People are going to go back, says Credit Suisse.

- I want to know how easy it was to get credit for some of these cancellations. That's my first question. But let's talk about this value proposition. I mean, I guess the question is, that value proposition was there pre-COVID. Is value still going to trump safety and concerns in this post-COVID world? I'm not sure about that, you know?

And I also look at the numbers that Credit Suisse has put out. 82% repeat customers. I mean, Jen, you said that they're not all old, right? There are people who are in their 40s that are going. But, I mean, isn't the part of growth trying to bring new customers in? And I do wonder how many travelers now, having seen what played out, are going to want to get on a cruise anytime soon?

So that's sort of the skeptical take. I have never wanted to go on a cruise. I don't plan to go on one. And I wonder how many new people they're going to be able to bring on board now.

RICK NEWMAN: I mean, you've got to ask the question, where are people going to travel? You know, a lot of the more exciting or exotic travel, you have to get on an airplane. I mean part of the Credit Suisse case for cruises is that a lot of people can drive to the entry point for a cruise. Honestly, I don't like cruises because I dislike people too much to be around that many people all at once.

But if it weren't for that, I might give it a try. If they actually came up some good offer, I might say, you know what, I just feel like partying. It's been a year of coronavirus lockdown. I feel like partying by the pool. I'll give it a try.

- Rick, do you know what that's called? A private yacht. So you just have to find a very bougie friend and get yourself [INAUDIBLE].

RICK NEWMAN: Well, maybe I'll have the private yacht by next year. But if I don't, you know, the cruise ship is a fallback.

- Yep, I mean, I don't know. Maybe it's the safest time to take a cruise ship. We're all washing our hands so much more.

RICK NEWMAN: Well, imagine if you could take a cruise ship the way that people are traveling on airlines right now. You have a whole floor to yourself. I mean, they should give that a shot. Maybe that's how they get it started. We're only going to put people in every 10th state room so you don't have to be around that many people. There won't be a line at the bar. There won't be a line at the buffet. You'll have the whole boat to yourself.

- I think we've worked this out, you guys. Anyhow, stocks were up big on this note today. Of course, they are still down, on average, between 75% and 80%. So take that for what you will. There they are today, though, some green.