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Why AMC Entertainment, Carnival and Norwegian Cruise Lines Dropped Today

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what happened

shares of AMC Entertainment (AMC 6.29%), carnival (CCL 4.44%)When norwegian cruise line (NCLH 4.49%) After a tough month in June, they fell again on Wednesday, down 3.3%, 6.3% and 9.9% respectively as of 1pm ET.

We didn’t get any significant news from these companies today, but they all have two big things in common that have led to their bankruptcies. First, each is a consumer discretionary stock, and it is clear that consumers are cutting back amid high food and fuel inflation. Second, each of these companies has had to rack up debt during the pandemic. Not only are they now burdened with additional interest payments, but current interest rates are high, making refinancing costly.

These are on the rise as fears of a recession rise as the US Federal Reserve (Fed) suggests its main goal is to keep inflation down, not avoid it. Stocks are falling.

So what

Notably, despite AMC falling, Minions, Rise of Gru It smashed last weekend’s Fourth of July weekend box office record, earning $125.2 million in the U.S. Transformers, Dark of the Moon Dating back to 2011.new it top gun Movies, and cinemas, seemed to do quite well in June and July.

So what’s the problem? good, minions is just one movie, and AMC needs more sustained movies to get back to the green. AMC still hasn’t had a profitable quarter to come out of the pandemic, with $1.2 billion in cash and he’s $5.5 billion in debt, still heavily indebted. The company also said he ran out of $330 million in cash in the first quarter and only got four quarters of his runway. Q2 and Q3 should improve, top gun When minionsenough to get cash flow back in positive? Low-cost streaming options at home won’t help the recession.

The same applies to cruise lines Norwegian and Carnival. These two companies now have to contend with rising fuel costs and interest rates, despite the enormous demand for travel. But oil prices and long-term interest rates have fallen since the Federal Reserve hiked its rates by 75 basis points in mid-June.

Falling oil prices and interest rates point to cooling demand and a possible recession. On the other hand, all cruise lines need to achieve high load factors to regain profitability and pay interest costs. Cruise companies aren’t registered in the US, so they didn’t get much government support during the pandemic.

Last month, an analyst Morgan Stanley Carnival’s debt was declared “unsustainably high.” Carnival, on the other hand, posted a pre-tax loss of $1.9 billion in the last quarter alone. Norwegian lost nearly $1 billion before tax. Even if it returns to profitability this year, it will take a lot of time and effort to pay off the higher debt.

Of course, Omicron’s concerns were still a concern earlier in the year, so each company’s performance should improve compared to the first quarter. That said, prospects for a rebound in demand are in question amid recession fears amidst tightening by the Fed. This doesn’t just mean less than stellar results.these companies requirement There is a strong demand, perhaps just to survive.

So

There is now a great deal of uncertainty about inflation and the direction of the economy. It is still possible that the Federal Reserve plans a “soft landing” in which inflation falls without the economy going into a deep recession, but that is highly uncertain. Also, keep in mind that each of these companies has significant operations in Europe, and Europe is in even worse shape than the United States.

Given the high degree of uncertainty, investors should probably look to companies with much better balance sheets and less discretionary exposure. No doubt, these stocks could skyrocket if conditions improve. However, there is a very real possibility that these companies will go bankrupt, or at least further dilute their shareholders. With so many blue chip companies falling so much in this market, these three don’t seem worth the risk.