Send me real-time posts from this site at my email
Motley Fool

Why Norwegian Cruise Line Holdings Stock Just Sank 5%

What happened

At first glance, today looked almost "normal" for cruise line stocks. With the S&P 500 roughly flat, but optimism growing that cruise lines will be able to slowly resume sailing in a month or so, shares of Carnival (NYSE: CCL) and Royal Caribbean (NYSE: RCL) were both modestly higher early today, up about 1% apiece.

But in contrast to its peers, shares of Norwegian Cruise Line Holdings (NYSE: NCLH) were down 6% at 10:20 a.m. EST on Wednesday.

Image source: Getty Images.

So what

Late last night, Norwegian announced plans to sell 40 million new shares at $20.80 each. The company says it intends to use the money for "general corporate purposes," but I think we all know what that really means: Norwegian needs the cash to stay afloat while it cannot collect revenue from carrying passengers but still has to pay the bills on all the boats it floats.

The company hopes this offering will win it enough momentum (and enough cash) to coast through the tail end of the recession.

Now what

Will it? Before fees and costs, Norwegian's stock offering should raise $832 million for the beleaguered cruise line.

At last report, Norwegian was burning through $175 million in cash per month. That's a faster rate of cash burn per ship than either Carnival or Royal Caribbean. Still, even assuming Norwegian is unable to reduce its rate of cash burn (the opposite may be more likely, as Norwegian spends more to prepare for a resumption of cruising), the extra money should buy Norwegian another four to five months' breathing room. Added to the $2.4 billion the company had at last report, Norwegian should soon have about 18 months of cash available to it.

On the downside, it's going to have to dilute its existing shareholders by about 14.5% to accomplish this. And that's the real reason investors are selling off Norwegian Cruise Line stock today.

10 stocks we like better than Norwegian Cruise Line Holdings
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Norwegian Cruise Line Holdings wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of October 20, 2020

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.


Popular posts

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue