Norwegian Cruise Line Should Strengthen Cost Management, Says Analyst

BofA Securities analyst Andrew G. Didora reiterated a Neutral rating on the shares of Norwegian Cruise Line Holdings Ltd NCLH with a price target of $20.00.

The cruise line operator, in the wake of its investor day, raised its full-year 2024 guidance across several metrics.

The company raised adjusted earnings guidance from $1.32 to $1.42 per share. The updated guidance, according to the analyst, is largely in line with his $1.39 forecast, and the analyst’s estimates remain unchanged. 

Norwegian Cruise Line also introduced new 2026 targets, including adjusted earnings of approximately $2.45 per share, slightly below the analyst’s $2.67 estimate.

NCLH guided to net leverage of 4.5x by 2026 (BofA at 4.2x), a three-turn reduction from 2023, said the analyst.

Targets assume $7 billion in 2024-2026 operating cash flow as moderate capex plans over the period allow for $500 million in potential accelerated debt repayments in addition to $3.2 billion in debt amortization.

Pandemic-related dilution was a key area of question, but management noted their discomfort with addressing dilution through share repurchases before returning leverage levels to below 4.0x, added the analyst.

The analyst noted that long-term targets assume low to mid-single digit net yield growth through 2026 on a capacity growth CAGR of 5%, implying nearly 10% revenue growth the next 3 years.

Net yield growth is slightly higher than 2016-2019 growth of 3.4%, supported by an increased premium cabin mix, booking curve and marketing optimizations, and deployment adjustments, including private island investments, to suit customer preferences, according to the analyst.

Cost management is a key component of margin goals as NCLH targets unit costs below inflation to return operating leverage to historical levels, asserted the analyst.

Based on the EPS outlook, the analyst’s 2026 EBITDA forecast of nearly $3.1 billion appears in line with the company’s 2026 metrics. 

Price Action: NCLH shares are trading lower by 3.43% at $16.35 at the last check Wednesday.

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