Key Highlights

  • Cruise stocks do not usually move in different directions, but Monday, September 28 was an exception.
  • BofA's Andrew Didora upgraded it to Buy from Neutral with a $330 target and called it a "high quality business."
  • Norwegian Cruise Line and Viking both slid, with no company-specific news; they moved with their peers and with oil.
  • Consumer discretionary stocks, the sector that includes cruise lines, fell harder than the S&P 500 itself on Monday.

Royal Caribbean (NYSE:RCL) won a rare double upgrade on Monday, September 28, while Carnival (NYSE:CCL), Norwegian and Viking (NYSE:VIK) slipped as higher oil prices and a looming Earnings report weighed on the group.

A split in the fleet

Cruise stocks do not usually move in different directions, but Monday, September 28 was an exception. Royal Caribbean Cruises drew two bullish analyst calls, while Carnival, Norwegian Cruise Line (NYSE:NCLH) Holdings and Viking Holdings drifted lower.

The backdrop was tricky for any travel company. President Trump rejected Iran's plan to reopen the Strait of Hormuz over the weekend, and oil rose, with US crude settling near $93 and Brent around $105. Fuel is one of the biggest costs for cruise operators, so higher oil can squeeze profits. The 10-year Treasury Yield also hit its highest level since 2007, bad news for heavily indebted businesses.

Royal Caribbean's double upgrade

Two major banks turned bullish on Royal Caribbean on the same day. Deutsche Bank's Chris Woronka upgraded the stock to Buy from Hold with a $299 price target, arguing that the stock's decline since early August had created a more favorable risk-reward. BofA (NYSE:BAC)'s Andrew Didora upgraded it to Buy from Neutral with a $330 target and called it a "high quality business."

The stock's reaction was not clear-cut. What set it apart from its rivals on the day was the pair of upgrades, not a confirmed price gain.

Carnival and the rest

Carnival slipped to $22.10, ahead of its third-quarter results due this week. Current Logic reported that BofA cut its price target on Carnival, citing a surge in costs. Norwegian Cruise Line and Viking both slid, with no company-specific news; they moved with their peers and with oil.

The divergence shows how analysts are separating the operators. The upgrades on Royal Caribbean focused on quality and valuation, while the cost worries around Carnival highlight how sensitive the industry remains to fuel and other expenses.

The wider consumer picture

Consumer discretionary stocks, the sector that includes cruise lines, fell harder than the S&P 500 itself on Monday. The S&P 500 lost 59.72 points to 7,683.69, and decliners outnumbered advancers on the New York Stock Exchange by 2,054 to 678.

Rising rates matter for travel Demand as well as for balance sheets. Higher borrowing costs can squeeze household budgets, and discretionary trips are often among the first expenses consumers trim. The Federal Reserve raised rates in September, and futures price a majority chance of another hike in October.

Energy stocks showed the other side of the oil story. Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) both rose on Monday as crude climbed, and energy was one of only three S&P 500 sectors in positive territory. What helps oil producers tends to hurt fuel-hungry travel companies, and cruise lines sit on the wrong side of that trade.

Carnival's earnings decide the group's direction

Carnival's earnings this week are the key event for the group. Investors will look for comments on bookings, onboard spending and, above all, fuel costs at a time when oil is being driven by the US-Iran standoff. Any change in guidance will ripple across Royal Caribbean, Norwegian and Viking.

Oil itself remains a swing factor. Reports that Washington could ease certain sanctions in exchange for concessions trimmed crude's gains on Monday. The macro calendar is also heavy: consumer confidence and JOLTS Tuesday, PCE Inflation Wednesday, the ISM Manufacturing survey Thursday and the September jobs report Friday. Nike (NYSE:NKE)'s results this week will offer another read on consumer spending.